Question

I am stuck, can someone please explain this?

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below: Unit $ 25 و بیا Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Total $ 1,200,000 384,000 144,000 432,000 96,000 288,000 $ 2,544,000 $ 53 The Rets normally sell for $58 each. Fixed manufacturing overhead is $432,000 per year within the range of 39,000 through 48,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 39,000 Rets through regular channels next year. A large retail chain has offered to purchase 9,000 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 9,000 units. This machine would cost $18,000. 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 39,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 9,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's special order? 3. Assume the same situation as described in (2) above, except that the company expects to sell 48,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 9,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

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 48000 39000 9000 58 25.00 8.00 3.00 9.00 2.00 6.00 53 Answers 1) Financila Advantage (Net increase) 2) Financial Advantage (Net increase) 3) Financial Disadvantage (Net Decrease) 91980 97200 82800

1) if Accept the retail Chain Offer at 16% Discount Price. For 9,000 rets Per unit 9000 Units Sales Revenue 48.72 438480 Direct Material 25.00 225000 Direct labor 8.00 72000 Variable Manufacturing overheads 3.00 27000 Variable Selling Expenses 4500 Special Machine 18000 Net Operating income From Order 91980 0.50 Net profit Increase By 91980 2)IF Accept the US Army Order for Fixed fee of $1.8, and all Manufactruing Cost will Reimburse Per unit 9000 Units Fixed Fee Received 1.8 16200 Reimberse the Fixed MOH 91 81000 Incremental Net profit 97200 Net profit Increase By 97200

3) IF US Army order Accepted but Operating at full capacity. At Current operating Full Capacity Levele 48000 39000 Units Sales Revnue 2784000 2262000 Direct Material 1200000 975000 Direct labor 3840001 312000 Variable Manufacturing overheads 144000 117000 Fixed Manufacturing Overheads 432000 432000 Variable Selling Expenses 960001 78000 Fixed Selling Expenses 2880001 288000 Total Cost 2544000 2202000 Net Profit 240000 60000 97200 Increemtnal Analysis Increse in Net profit by Order Lose in profit for the Special Oder = 60000-240000 Decrease in net Profit Net Profit Will Decrase by - 180000 -82800 82800