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Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 50,000 Rets per year.
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 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 Total $ 20 $ 1,000,000 8 3 L 400, 000 150,000 350, 000 4 200,000 6 300, 000 $ 48 $ 2,400,000 The Rets normally sell for $53 each. Fixed manufacturing overhead is $350,000 per year within the range of 44,000 through 50,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 44,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 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 chain's name on the 6,000 units. This machine would cost $12,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of
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