Question

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below: Unit $ 20 6 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Total $ 680,000 204,000 102,000 238,000 136,000 204,000 $ 1,564,000 The Rets normally sell for $51 each. Fixed manufacturing overhead is $238,000 per year within the range of 26,000 through 34,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 8,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 8,000 units. This machine would cost $16,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 26,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 8,000 Rets. The Army would pay a fixed fee of $1.40 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would

Answer 1

B12 X fax 1 AB D at 34,000 units per unit direct material $20 direct labor $6 variable manufacturing ovehead $3 fixed manufacturing ovehead $7 variable selling expense $4 fixed selling expense $ 6 total cost $ 46 total $ 680,000 $ 204,000 $ 102,000 $ 238,000 $ 136,000 $ 204,000 $ 1,564,000 change if special order is not accepted $ 1,326,000 if special order is accepted $ 1,668,720 sales cost direct material direct labor variable manufacturing ovehead fixed manufacturing ovehead variable selling expense fixed selling expense special machine cost I total cost net income $ 520,000 $ 156,000 $ 78,000 $ 238,000 $ 104,000 $ 204,000 So $ 1,300,000 $ 26,000 $ 680,000 $ 204,000 $ 102,000 $ 238,000 $ 112,000 $ 204,000 $ 16,000 $1,556,000 $ 112,720 $ 86,720 financial advantage $ 86,720

B27 X ✓ fx 2 ДА В change if special order is not accepted $ 1,326,000 if special order is accepted $1,625,200 sales cost direct material direct labor variable manufacturing ovehead fixed manufacturing ovehead variable selling expense fixed selling expense total cost net income $ 520,000 $ 156,000 $ 78,000 $ 238,000 $ 104,000 $ 204,000 $ 1,300,000 $ 26,000 $ 680,000 $ 204,000.00 $ 102,000 $ 238,000 $ 104,000 $ 204,000 $ 1,532,000 $ 93,200 $ 67,200 financial advantage $ 67,200 change if special order is not accepted $ 1,734,000 if special order is accepted $1,625,200 sales cost direct material direct labor variable manufacturing ovehead fixed manufacturing ovehead variable selling expense fixed selling expense total cost net income $ 680,000 $ 204,000 $ 102,000 $ 238,000 $ 136,000 $ 204,000 $ 1,564,000 $ 170,000 $ 680,000 $ 204,000 $ 102,000 $ 238,000 $ 104,000 $ 204,000 $ 1,532,000 $ 93,200 $ 76,800 financial disadvantage $ 76,800

for formulas and calculations, refer to the image below -

B12 X fc 1 F total at 34,000 units per unit direct material direct labor variable manufacturing ovehead 3 fixed manufacturing ovehead variable selling expense fixed selling expense total cost =SUM(D4:09) =D4*34000 =D5*34000 =D6*34000 =D7*34000 D8*34000 =D9*34000 =SUM(E4:E9) if special order is not accepted if special order is accepted change sales 1=D13+(51*0.84*8000) =51*26000 cost direct material =D4*26000 direct labor =D5*26000 variable manufacturing ovehead =D6*26000 fixed manufacturing ovehead E7 variable selling expense =D8*26000 fixed selling expense special machine cost total cost =SUM(D15:021) net income =D13-D22 =D4*34000 =D5*34000 =D6*34000 =D18 =D19+D8*0.25*8000) =D20 16000 =SUM(E15:E21) =E13-E22 -E9 =E23-D23 financial advantage =F23

B27 A if special order is not accepted if special order is accepted change sales =D28+8000*(D4+D5+D6+D7+1.4)) =51*26000 cost direct material =D4*26000 direct labor =D5*26000 variable manufacturing ovehead =D6*26000 fixed manufacturing ovehead =E7 variable selling expense -D8*26000 fixed selling expense total cost ESUM(D30:035) net income =D28-D36 =D30/26000*34000 =D31/26000*34000 =D32/26000*34000 =D33 =D34 =D35 =SUM(E30:E35) =E28-E36 =E9 =E37-D37 financial advantage =F37 if special order is not accepted if special order is accepted change =E28 sales =51*34000 cost direct material =D4*34000 direct labor =D5*34000 variable manufacturing ovehead =D6*34000 fixed manufacturing ovehead =E7 variable selling expense =D8*34000 fixed selling expense =E9 total cost =SUM(D44:049) net income =D42-D50 =E30 =E31 =E32 =E33 =E34 =E35 =SUM(E44:E49) =E42-E50 =E51-D51 financial disadvantage =F51

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