Part A

Polaris Corporation manufactures and sells 300,000 electrical meters using a capacity of 110,000 machine hours, enough to make 330,000 units each year, which usually includes 30,000 units that have to be reworked. Contribution margin -CM -per saleable unit is $8.Additional costs perreworkedunit are:

$7

Company engineers have devised a new process that would completely eliminate defects and therefore avoid the need for rework, and would actually increase capacity, however, this will add $315,000in fixed manufacturing overhead each year.

Required:

1.Determine the impact of the new process if Polaris were to produce the same quantity of units as in the past. Clearly show any cost savings and extra costs.

PartB

Assume that Polaris has proceeded with the anticipated changes, and is exploring new markets as a result of the engineering changes referred to above aswell as the increase in capacity, andhasaccepted a proposal to make 20,000 units of amodified version of the meter which will generate $10 of contribution margin per unit.

Required:

2.Should Polaris go ahead with this new job? Explain with proof.

3.What other nonfinancial and qualitative factors should be considered in making this decision?