Problem 13-22 (Algo) Special Order Decisions (LO13-4) Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year Costs associated with this level of production and sales are given below Unit Total Direct materiala 5:20 $ 900,000 Direct labor 3 384.000 Variable manufacturing woorhead 3 144.000 Pixud tautincturing overhead 7 836.000 Variable selling expense 192.000 Fixed sollins expono 6 288,000 Total cost $ 48 $ 2,304,000 The Rets normally sell for $53 each Fixed manufacturing overhead is $336,000 per year within the range of 40,000 through 48,000 Rets per year Required: 1. Assume that due to a recession, Polaska Company expects to sell only 40,000 Rets through regular channels next year A large retail chain has offered to purchase 8.000 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 8,000 units. This machine would cost $16,000 Polaska 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.) Required: 1. Assume that due to a recession, Polaski Company expects to sell only 40.000 Rets through regular channels next year A large retail chain has offered to purchase 8,000 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 8,000 units. This machine would cost $16,000 Polaska 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 cata. Assume again that polaski Company expects to sell only 40.000 Rets through regular channels next year The US Arny would like to make a one-time-only purchase of 8,000 Rets. The Army would reimburse polaska 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 48,000 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 US Army's special order? 1 2 3
