Gruden Company produces golf discs which it normally sells to retailers for SR7 each. The cost of manufacturing 20,000 golf discs is:

Gruden also incurs 5% sales commission (SR0.35) on each disc sold. McGee Corporation offers Gruden SR4.80 per disc for 5,000 discs. McGee would sell the discs under its own brand name in foreign marketsnot yet served by Gruden.If Gruden acceptsthe offer, its fixed overheadwill increase from SR40,000to SR46,000 due to the purchase of a new imprinting machine. No sales commission will result from the specialorder.

Instructions

1. Prepare an incremental analysis for the special order.

	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Netincome

1. Should Gruden accept the specialorder? Why or why not?

1. What assumptions underliethe decision made in part (b)?