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 20,000 Rets per year Costs associated with this level of production and sales are as follows: The Rets normally sell for $52 each. Fixed manufacturing overhead is constant at $190,000 per year within the range of 14,000 through 20,000 Rets per year. Required: 1. Assume that, due to a recession, Polaski Company expects to sell only 14,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 Rets if Polaski is willing to accept a price lower than the regular $52. 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 6,000 units. This machine would cost \$12,000. Polaski Company has no assurance that the retail chain will purchase additional units any time in the future. Determine the maximum discount that Polaski can offer to this large retail chain in order for it to be no worse off compared to its current profit. (Do not round intermediate colculations. Round your percentage answer to nearest whole number.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 14,000 Rets through regular channels next year. The Canadian Forces would like to make a one-time-only purchase of 6,000 Rets. The Forces would pay a fixed fee of $1,20 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 varlable selling expenses of any type associated with this ordec. If Polaski Company accepts this order, by how much will profits be increased or decreased for the year? (Do not round intermediote calculations.) 3. Assume ogain that Polaski Company expects to sell only 20,000 Rets through regular channels next year. The Canadian Forces would thke to make a one-time-only purchase of 6,000 Rets. The Forces would pay a fixed fee of $1.20 per Ret, and in addition would reimburse Polaski Company for ail costs of production (variable and foxed) associated with the units. Thus, accepting the Canadian Forces' order would require giving up regular sales of 6.000 Rets. Since the Forces would pick up the Rets with its own trucks, there would be no varlable selling expenses of any type associated with this order. Compute the minimum fixed fee per unit that Polaskl must receive from the Canadian Forces (in addition to the reimbursement of production costs) in order to accept this ordec. (Do not round intermediote calculations-)
