Polaski Company manufactures and sells a single product called a Ret. Operating
ID: 2430459 • Letter: P
Question
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity,the company can produce and sell 42.000 Rets per year. Costs associated with this level of production and sales are given below 20$ 840,000 336,000 126,000 378,000 84,000 252,000 overhead Pixed elting expense 48$2,016,000 The Rets normaly sel for $53 each. Fixed manufacturi 42,000 Rets per year ng overhead is $378,000 per year within the range of 34000 through 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 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. Polaski 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 Polaski Company expects to sell only 34.000 Rets through regular channels n year. The U.S. Army would like to make a one-time-only purchase of 8,000 Rets. The Army would pay a fixed fee of $1.20 per Ret and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units 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? ext 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 U.S. Army's order would require giving up regular sales of 8,000 Rets. Given this new what is the financial advantage (d ntage) of accepting the U.S. Army's special order? ormation,Explanation / Answer
1. The relevant costs here are the costs of the new machine, and this cost will be recovered by the current order.
Thus the financial advantage of accepting the special order is $88,160
2. Here reimbursement will be of direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhaed. Amount per unit = 20+8+3+9 = $40
Thus there is an advantage of $81,600
3.
Thus there will be a net disadvantage of 78,400
Final answers:
Total 8000 units Sale from the order ($53*84%) 44.52 356,160.00 less: costs associated with the order Direct materials 20.00 160,000.00 Direct labor 8.00 64,000.00 Variable manufacturing overhead 3.00 24,000.00 Variable selling expenses ($2*(1-75%)) 0.50 4,000.00 Special machine (16,000/8000) 2.00 16,000.00 Total costs 33.50 268,000.00 Net increase in profits 11.02 88,160.00