Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and selli 42,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Tixed manufacturing overhead Variable selling expense Pixed selling expense Total cost Unit $ 20 8 3 5 2 6 $44 Total $ 340,000 336,000 126,000 210,000 84,000 252,000 $1,848,000 The Rets normally sell for $49 each. Fixed manufacturing overhead Is $210,000 per year within the range of 34,000 through 42,000 Rets per year Required: 1. Assume that due to a recession, Polaski Company expects to sell only 34,000 Rets through regular channels next year. A large retail chain has offered to purchase 8,000 Rets if Poloski 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 8,000 units. This machine would cost $16,000. Poloski 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 34,000 Rets through regular channels nxt year. The U.S. Army would like to make a one-time-only purchase of 8,000 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 $2.00 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 42,000 Rets through regular channels next year . Thus, accepting the US Army's order would require giving up regular sales of 8,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order? 1. . 2. 3. Bed & Bath, a retalling company has two departments--Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Tixed expenses Net operating income (100) Department Total Hardware Liens $ 4,180,000 $3,090,000 $1,090,000 1.344.000 935,000 409,000 2,836,000 2,155,000 681,000 2,140,000 1,320.000 $20,000 $ 696,000 4 835,000$ (139,000) A study indicates that $373,000 of the fixed expenses being charged to Linens are sunk costs of allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 16% decrease in the sales of the Hardware Department Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Financial (disadvantago)
