Larkin Company produces golf discs which it normally sells to retailers for $6 each. The cost of manufacturing 25,000 golf discs is:
Innova also incurs 5% sales commission ($0.30) on each disc sold.
Rudd Corporation offers Innova $4.25 per disc for 5,000 discs. Rudd would sell the discs under its own brand name in foreign markets not yet served by Larkin. If Larkin accepts the offer, its fixed overhead will increase from $50,000 to $55,000 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 Innova accept the special order? Why or why not?

Question

Larkin Company produces golf discs which it normally sells to retailers for $6 each. The cost of manufacturing 25,000 golf discs is:  
Innova also incurs 5% sales commission ($0.30) on each disc sold.
Rudd Corporation offers Innova $4.25 per disc for 5,000 discs. Rudd would sell the discs under its own brand name in foreign markets not yet served by Larkin. If Larkin accepts the offer, its fixed overhead will increase from $50,000 to $55,000 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 Innova accept the special order? Why or why not?

Quizplus · Accepted Answer

The Answer of Larkin Company produces golf discs which it normally sells to retailers for $6 each. The cost of manufacturing 25,000 golf discs is:  
Innova also incurs 5% sales commission ($0.30) on each disc sold.
Rudd Corporation offers Innova $4.25 per disc for 5,000 discs. Rudd would sell the discs under its own brand name in foreign markets not yet served by Larkin. If Larkin accepts the offer, its fixed overhead will increase from $50,000 to $55,000 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 Innova accept the special order? Why or why not?

Larkin Company Produces Golf Discs Which It Normally Sells to Retailers