Problem 9-5 Determining Whether to Accept or Reject a Special Order (LO1 - CC5) Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32.000 Rets per year. Costs assoclated with this level of production and sales are as follows: The Rets normally sell for $64 each. Fixed manufacturing overhead is constant at $400,000 per year within the range of 20,000 through 32,000 Rets per year. Required: 1. Assume that, due to a recession. Polaski Company expects to sell only 20,000 Rets through regular channels next year. A large retail chain has offered to purchase 12.000 Rets if Polaski is willing to accept a price lower than the regular $64. 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 12,000 units. This machine would cost $24.000. Polaski Company has no assurance that the retall chain will purchase additional units any time in the future. Determine the maximum discount that Polaski can offer to this large retall chain in order for it to be no worse off compared to its current profit. (Do not round intermediote calculotions. Round your percentage answer to neorest whole number.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 20,000 Rets through regular channels next year, The Canadian Forces would like to make a one time only purchase of 12,000 Rets. The Forces would pay a fixed fee of $200 per Ret. and in addition would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the Forces would pick up the Rets with its own trucks, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts this order. by how much will profits be increased or decreased for the year? (Do not round intermediate calculations.) 3. Assume again that Polaski Company expects to sell only 32,000 Rets through regular channels next yeat. The Canadian Forces would like to make a one-time-only purchase of 12.000 Rets. The Forces would pay a fixed fee of $2.00 per Ret. and in addition would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Thus, accepting the Canadian Eorces' order would require giving up regular sales of 12,000 Rets. Since the Forces would pick up the Rets with its own trucks. there would be no variable selling expenses of any type associated with this order. Compute the minimum fixed fee per unit that Polaski must recelve from the Canadian Forces (in addition to the reimbursement of production costs) in order to afcept this order. (Do not round intermediate colculations.)
