Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 38,000 Rets per year. Costs associated with this level of production and sales are given below:

	Unit			Total
Direct materials	$	25		$	950,000
Direct labor		8			304,000
Variable manufacturing overhead		3			114,000
Fixed manufacturing overhead		7			266,000
Variable selling expense		4			152,000
Fixed selling expense		6			228,000
Total cost	$	53		$	2,014,000

The Rets normally sell for $58 each. Fixed manufacturing overhead is constant at $266,000 per year within the range of 28,000 through 38,000 Rets per year.

Required:

1.

Assume that due to a recession, Polaski Company expects to sell only 28,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 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 10,000 units. This machine would cost $20,000. 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.