Question 1 - Gruner Company produces golf discs which it normally sells to retailers for $7.18 each. The cost of manufacturing 18,300 golf discs is:
|
Materials
|
$8,601
|
|
Labor
|
27,633
|
|
Variable overhead
|
19,032
|
|
Fixed overhead
|
36,051
|
|
Total
|
$91,317
|
Gruner also incurs 8% sales commission ($0.57) on each disc sold. Travis Corporation offers Gruner $4.75 per disc for 4,200 discs. Travis would sell the discs under its own brand name in foreign markets not yet served by Gruner. If Gruner accepts the offer, its fixed overhead will increase from $36,051 to $40,989 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Prepare an incremental analysis for the special order.
Should Gruner accept the special order?
Question 2 - Gruner Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:
|
Materials
|
$10,000
|
|
Labor
|
30,000
|
|
Variable overhead
|
20,000
|
|
Fixed overhead
|
40,000
|
|
Total
|
$100,000
|
Gruner also incurs 5% sales commission ($0.35) on each disc sold.
Travis Corporation offers Gruner $4.75 per disc for 5,000 discs. Travis would sell the discs under its own brand name in foreign markets not yet served by Gruner. If Gruner accepts the offer, its fixed overhead will increase from $40,000 to $45,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
What assumptions underlie the decision made as to whether Gruner should accept or reject the special order?