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Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 44,000 Rets per year. Costs
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 44,000 Rets per year. Costs associated with this level of production and sales are given below:
Unit | Total | |
---|---|---|
Direct materials | $ 20 | $ 880,000 |
Direct labor | 8 | 352,000 |
Variable manufacturing overhead | 3 | 132,000 |
Fixed manufacturing overhead | 7 | 308,000 |
Variable selling expense | 2 | 88,000 |
Fixed selling expense | 6 | 264,000 |
Total cost | $ 46 | $ 2,024,000 |
The Rets normally sell for $51 each. Fixed manufacturing overhead is $308,000 per year within the range of 37,000 through 44,000 Rets per year.
Required:
- Assume the same situation as described in (2) above, except that the company expects to sell 44,000 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?
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