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 Unit $20 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost 3 9 4 Total $ 760,000 304,000 114,000 342,000 152, eee 228,000 $ 1,900,000 6 $50 The Rets normally sell for $55 each. Fixed manufacturing overhead is $342,000 per year within the range of 31,000 through 38.000 Rets per year Required: 1. Assume that due to a recession, Polaski Company expects to sell only 31000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 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 7000 units. This machine would cost $14,000. Polask 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 Polaski Company expects to sell only 31,000 Rets through regular channels next year. The US Army would like to make a one-time only purchase of 7000 Rets. The Army would reimburse polaski 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 $160 per unit Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated purchase a special machine to engrave the retail chain's name on the 7000 units. This machine would cost $14,000. 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 Polaski Company expects to sell only 31,000 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 company's absorption costing system, plus it would pay an additional fee of $160 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 US 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 US Army's order would require giving up regular sales of 2000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the US Army's special order? 2 3
