Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 42,000 Rets per year. Costs associated with this level of production and sales are given below:

Unit

Total

Direct materials

$

20

$

840,000

Direct labor

10

420,000

Variable manufacturing overhead

3

126,000

Fixed manufacturing overhead

9

378,000

Variable selling expense

4

168,000

Fixed selling expense

6

252,000

Total cost

$

52

$

2,184,000

2.

Refer to the original data. Assume again that Polaski Company expects to sell only 37,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 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. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?

Net Profit Will (Increase/Decrease) by ___________

3.	Assume the same situation as that described in (2) above, except that the company expects to sell 42,000 Rets through regular channels next year. Thus, accepting the U.S. Armys order would require giving up regular sales of 5,000 Rets. If the Armys order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channels?
	Net Profit will (Increase/Decrease) by _____________