Question

Saved Submit r 13 Help Save & Exit Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 46,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $ 20 10 3 9 2 6 $ 50 Total $ 920,000 460,000 138,000 414,000 92,000 276,000 $ 2,300,000 The Rets normally sell for $55 each. Fixed manufacturing overhead is $414,000 per year within the range of 36,000 through 46,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 36,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 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 10,000 units. This machine would cost $20,000. 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 36,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 10,000 Rets. The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the company's absorption costing system, plus it would pay an additional fee of $1.20 per unit. 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 46,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 10,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

Answer 1

Answer is attached below

Answer 1 Evaluation of special order per unit ($) Total ($) 46.2 4,62,000 Incremental Sales Less: Incremental Cost Direct Material Direct Labor Variable Manufacturing Overhead Variable Selling Expense Total Cost 20 10 3 0.5 33.5 2,00,000 1,00,000 30,000 5,000 3,35,000 Incremental Contribution Less: Additional Cost of machine Net Profit 1,27,000 20,000 1,07,000 Financial Advantage of accepting offer 1,07,000 Answer 2 Additional Fixed Fee (10,000 * 1.20) Fixed Manufacturing Cost reimbursed (10,000 * 9) Total increase in Profit 12,000 90,000 1,02,000 Financial Advantage of accepting offer 1,02,000

Answer 3 Additional Fixed Fee (10,000 * 1.20) Fixed Manufacturing Cost reimbursed (10,000 * 9) Total increase in Profit Less: Loss on Contribution on regular units (10,000 * (55-35) 12,000 90,000 1,02,000 2,00,000 Financial Disadvantage of accepting offer -98,000