Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 26,000 Rets per year. Costs associated with this level of production and sales are as follows:

UnitTotalDirect materials$17.00$442,000Direct labour10.00260,000Variable manufacturing overhead5.00130,000Fixed manufacturing overhead11.00286,000Variable selling expense4.00104,000Fixed selling expense6.00156,000Total cost$53.00$1,378,000

The Rets normally sell for $58 each. Fixed manufacturing overhead is constant at $286,000 per year within the range of 17,000 through 26,000 Rets per year.

Required:1.Assume that, due to a recession, Polaski Company expects to sell only 17,000 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 chain's 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 any time in the future. Determine the impact on profits next year if this special order is accepted.