Question
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below: |
Unit | Total | ||||
Direct materials | $ | 20 | $ | 680,000 | |
Direct labor | 10 | 340,000 | |||
Variable manufacturing overhead | 3 | 102,000 | |||
Fixed manufacturing overhead | 7 | 238,000 | |||
Variable selling expense | 4 | 136,000 | |||
Fixed selling expense | 6 | 204,000 | |||
| |||||
Total cost | $ | 50 | $ | 1,700,000 | |
The Rets normally sell for $55 each. Fixed manufacturing overhead is constant at $238,000 per year within the range of 25,000 through 34,000 Rets per year. |
Required: | |||
1. | Assume that due to a recession, Polaski Company expects to sell only 25,000 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 chains 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. Determine the impact on profits next year if this special order is accepted. | ||
Net Profit (increases/decreases) by
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started