Shank Company produces golf discs which it normally sells to retailers for $7 each. The cost of

Question:

Shank 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
Shank also incurs 5% sales commission ($0.35) on each disc sold.
Mulligan offers Shank $4.75 per disc for 5,000 discs. Mulligan would sell the discs under its own brand name in foreign markets not yet served by Shank. If Shank 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.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Shank accept the special order? Why or why not?
(c) What assumptions underlie the decision made in part (b)?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...