PART 1 - Incremental Analysis

Gagandeep Corporation manufactures basketballs. Currently they have capacity to produce 15,000 basketballs during the quarter. Gagandeep Corp. receives a special order request from Harpal Corp. for 2,000 basketballs. Harpal offers to purchase the basketballs for $45 per unit. Normal production costs are direct materials of $10/unit, direct labour of $15/hour, variable manufacturing overhead of $2.50/unit and fixed manufacturing overhead of $10,000.

Each unit takes 0.5 hours to produce. To fulfill the order Gagandeep Corp. would also incur a selling cost of $3/unit. As of now Gagandeep Corp. is operating at 80% capacity.

1. Perform incremental analysis to see if Gagandeep Corp. should accept this special order.

1. Are there any irrelevant costs in the above scenario? If so, state which one(s)

1. How would your analysis change if Gagandeep Corp. was operating at full capacity.