T Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 8,000 units per year is:

Direct materials $2.50

Direct labor 3.00

Variable manufacturing overhead .50

Fixed manufacturing overhead 4.25

Variable selling and administrative expense 1.50

Fixed selling and administrative expenses 2.00

The normal selling price is $15.00 per unit. The companys capacity is 10,000 units per month. An order has been received from an overseas source for 2,000 units at the special price of $12.00 per unit. This order would not affect regular sales.

1. Prepare an incremental analysis for the special order.
2. Should Gruden accept the special order? Why or why not?
3. What assumptions underlie the decision made in part (b)?