Polaski Company manufactures and sells a single product called a Ret Operating at capacity, the company can produce and sell 40,000 Rets per year Costs associated with this level of production and sales are given below Unit Total Direct materials $ 20 $ 800,000 Direct labor 8 320,000 Variable manufacturing overhead 3 120,000 Fixed manufacturing overhead 5 200,000 Variable selling expense 4 160,000 Fixed selling expense 6 240,000 Total cost $ 46 $ 1,840,000 The Rets normally sell for $51 each Fixed manufacturing overhead is $200,000 per year within the range of 33,000 through 40,000 Rets per year Required Assume due to a recession, Polaski Company expects to sell only 33,000 Rets through regular channels next year A large retail chain offered to purchase 7,000 Rets if Polaski will 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 for $14,000 to engrave the retail chains name on the 7,000 units 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 Note Round your intermediate calculations to 2 decimal places Refer to the original data Assume Polaski Company expects to sell 33,000 Rets through regular channels next year The U S Army would like to make a one time only purchase of 7,000 Rets The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the companys absorption costing system, plus it would pay an additional fee of $1 20 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 Assume the same situation as described in (2) above, except the company expects to sell 40,000 Rets through regular channels next year Thus, accepting the U S Armys order would require giving up regular sales of 7,000 Rets Given this new information, what is the financial advantage (disadvantage) of accepting the U S Army's special order

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 30, 2024

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are given below:

	Unit	Total
Direct materials	$ 20	$ 800,000
Direct labor	8	320,000
Variable manufacturing overhead	3	120,000
Fixed manufacturing overhead	5	200,000
Variable selling expense	4	160,000
Fixed selling expense	6	240,000
Total cost	$ 46	$ 1,840,000

The Rets normally sell for $51 each. Fixed manufacturing overhead is $200,000 per year within the range of 33,000 through 40,000 Rets per year.

Required:

Assume due to a recession, Polaski Company expects to sell only 33,000 Rets through regular channels next year. A large retail chain offered to purchase 7,000 Rets if Polaski will 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 for $14,000 to engrave the retail chains name on the 7,000 units. 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?

Note: Round your intermediate calculations to 2 decimal places.

Refer to the original data. Assume Polaski Company expects to sell 33,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the companys absorption costing system, plus it would pay an additional fee of $1.20 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?
Assume the same situation as described in (2) above, except the company expects to sell 40,000 Rets through regular channels next year. Thus, accepting the U.S. Armys order would require giving up regular sales of 7,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?