Question

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Unit $ 20 10 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Total $ 720,000 360,000 108,000 252,000 72,000 216,000 $ 1,728,000 $ 48 The Rets normally sell for $53 each. Fixed manufacturing overhead is $252,000 per year within the range of 27,000 through 36,000 Rets per year.

Answer 1

Total Capacity Current Operating Level Special Order Selling Price Direct Material Direct labor Variable Manufacturing overheads Fixed Manufacturing Overheads Variable Selling Expenses Fixed Selling Expenses Total Cost 36000 27000 9000 53 20.00 10.00 3.00 7.00 2.00 6.00 48 Answers 1) Financila Advantage 2) Financial Advantage 3) Financial Disadvantage 81180 77400 84600

1) if Accept the retail Chain Offer at 16% Discount Price. For 9,000 rets Per unit 9000 Units Sales Revenue 44.52400680 Direct Material 20.00 180000 Direct labor 10.00 90000 Variable Manufacturing overheads 3.00 27000 Variable Selling Expenses 0.50 4500 Special Machine 18000 Net Operating income From Order 81180 Net profit Increase By 81180 2)IF Accept the US Army Order for Fixed fee of $1.60, and all Manufactruing Cost will Reimburse Per unit 9000 Units Fixed Fee Received 1.6 14400 Reimberse the Fixed MOH 63000 Incremental Net profit 77400 Net profit Increase By 77400

3) IF US Army order Accepted but Operating at full capacity. At Current operating Full Capacity Levele 36000 27000 Units Sales Revnue 1908000 1431000 Direct Material 720000 540000 Direct labor 360000 270000 Variable Manufacturing overheads 108000 81000 Fixed Manufacturing Overheads 252000 252000 Variable Selling Expenses 72000 54000 Fixed Selling Expenses 216000 216000 Total Cost 17280001413000 Net Profit 180000 18000 Increemtnal Analysis Increse in Net profit by Order Lose in profit for the Special Oder = (18000-180000) Decrease in net Profit -162000 -84600 Net Profit Will Decrase by 84600