Question
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 47,000 Rets per year. Costs
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 47,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $13 $611,000 Direct labor 8 376,000 Variable manufacturing overhead 3 141,000 Fixed manufacturing overhead 7 329,000 Variable selling expense 4 188,000 Fixed selling expense 3 141,000 Total cost $38 $1,786,000 The Rets normally sell for $59 each. Fixed manufacturing overhead is constant at $329,000 per year within the range of 28,000 through 47,000 Rets per year. 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 4,300 Rets if Polaski is willing to accept a 15% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 58%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 4,300 units. This machine would cost $4,300. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Calculate the net increase/decrease in profits next year if this special order is accepted.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started