Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and self 50,000 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 Total $ 1,000,000 500,000 150,000 450.000 100,000 300,000 $ 2,500,000 $50 The Rets normally sell for $55 each. Fixed manufacturing overhead is $450,000 per year within the range of 40.000 through 50.000 Rets per year Required: 1. Assume that due to a recession, Polaski Company expects to sell only 40,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 Rets ir Polski is willing to accept a 16% discount of the regular price There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 756. However, Poloski 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. Polak 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 Polski Company expects to sell only 40,000 Rets through regular channels next you The US Army would like to make a one-time only purchase of 10,000 Rets. The Army would reimburse Poland 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 D Next 3 of 3 2. Refer to the original data. Assume again that Polaski Company expects to sell only 40,000 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 Polask 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 $2.00 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 50,000 Rets through regular charnets next year. Thus, accepting the US 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 US Army's special order? 1 2 3
