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: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $ 20 10 3 7 2 Total $ 760,000 380,000 114,000 266,000 76,000 229,000 $ 1,824,000 $48 es The Rets normally sell for $53 each. Fixed manufacturing overhead is $266,000 per year within the range of 32,000 through 38,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 32,000 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 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 accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Poloski Company expects to sell only 32,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would reimburse Poloski 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 $1.60 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 38,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 6,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the US Army's special order? 1 2 3 780 1,550 4,500 1.300 Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (195 seats * 408 occupancy * $210 ticket price) $ 16,380 100.00 Variable expenses ($18.00 per person) 1,404 8.6 Contribution margin 14,976 91.41 Flight expenses: Salaries, flight crew $ 1,800 Flight promotion Depreciation of aircraft Fuel for aircraft 5,600 Liability insurance Salaries, light assistants Baggage loading and flight preparation 1,950 Overnight costs for flight crew and assistants at destination 700 Total flight expenses 18,180 Net operating loss $ (3,204) The following additional information is available about flight 482: a. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips they complete. b. One-third of the liability insurance is a special charge assessed against fight 482 because in the opinion of the insurance company. the destination of the flight is in a "high-risk area. The remaining two-thirds would be unaffected by a decision to drop flight 482 c. The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the company's total baggage loading and flight preparation expenses. d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight. e Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible 1. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft In its fleet or the number of flight crew on its payroll. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage) OK (Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut. If the T-bone steaks are sold as initially cut the company figures that a 1-pound T-bone steak would yield the following profit: Selling price ($2.20 per pound) $ 2.20 Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product 1.35 Profit per pound $ 0.85 If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides the filet mignon and cutting the other side provides the New York cut. One 16 ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut the remaining ounces are waste. It costs $0.12 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $3,60 per pound, and the New York cut can be sold for $3.30 per pound. Required: 1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks? 2. Would you recommend that the T-bone steaks be sold as initially cut or processed further? Int ences Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) per unit $ 2.20 1.35 (Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit: Selling price ($2.20 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product Profit per pound $ 0.85 If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides the filet mignon and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8 ounce New York cut; the remaining ounces are waste. It costs $0.12 to further process one T-bone steak into the filet mignon and New York cuts. The filet mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.30 per pound. Required: 1. What is the financial advantage (disadvantage) of further processing one T-bone steak into filet mignon and New York cut steaks? 2. Would you recommend that the T-bone steaks be sold as initially cut or processed further? Complete this question by entering your answers in the tabs below. Required 1 Reguiled 2 Would you recommend that the T-bone steaks be sold as initially cut or processed further? OT-bone steaks should be processed further T-bone steaks should be sold as initially out