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Nicholas-Giddings Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs

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Nicholas-Giddings Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense $20 3 4 600,000 300,000 90,000 270,000 120,000 180,000 10 S otal 6 Total cost $52 $ 1,560,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 23,000 through 30,000 Rets per year Required: 1. Assume that due to a recession, Nicholas Giddings Company expects to sell only 23,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Nicholas 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, Nicholas Company would have to purchase a special machine to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. Nicholas Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted Net profit increases 2. Refer to the original data. Assume again that Nicholas expects to sell only 23,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.20 per Ret, and it would reimburse Nicholas Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Nicholas accepts the order, by how much will profits increase or decrease for the year? Net profit increases by$ 71,400

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