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

Question

y produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 16,700 goif discs is: Materials Labor 8,350 24,883 Total Pronghorn also incurs 6% sales commission ($0.41) on each disc sold. McGee Corporation offers Pronghorn $4.82 per disc for 5,110 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Pronghorn. If Pronghorn accepts the offer, its fixed overhead will increase from $32,899 to $38,779 due to the purchase of a new imprinting machine. No sales commission wiW resuit from the special order. Reject Order Accept Order Net Income

Explanation / Answer

a) Incremental Analysis for the special order

b) Pronghorn should Reject the order.

Particulars Reject Accepts Net Increase/(Decrease) Revenue $116900 $105760.2 (11139.8) Materials 8350 8350 - Labor 24883 24883 - Variable Overheads 17702 17702 - Fixed overheads 32899 38779 (5880) Sales Commission 6847 4751.9 2095.1 Net Income $26219 $11294.3 $14924.7

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