Check my work Polaski Company manufactures and sells a single product called a R
ID: 2511029 • Letter: C
Question
Check my work 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 s 25 Total Direct materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead Variable selling expense Pixed selling expense Total cost $ 1,100,000 264,000 132,000 08,000 88,000 264,000 ook $49 2,156,000 The Rets normally sell for $54 each. Fixed manufacturing overhead is $308,000 per year within the range of 36,000 through 44,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 36,000 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 deta. Assume again that Polaski Company expects to sell only 36,000 Rets through regular channels next 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 $2.00 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army wouldExplanation / Answer
Anwswer:
1
Calculation of the impact on profits next year if this special order is accepted
Incremental Revenue
= 8000*(54 * (100%-16%))
362880
Less:
Direct Material Cost = 8000*25
-200000
Direct Labor Cost =8000*6
-48000
Variable Manufacturing Cost =8000*3
-24000
Variable Selling Expenses =8000*2*(1-75%)
-4000
Cost of Special Machine
-16000
Net increase in profits
70880
________________________________
2
Calculation of the impact on profits next year if this special order is accepted
Incremental Revenue = 8000*2
16000
Additional recovery of Fixed manufacturing overhead = 8000*7
56000
Net increase in profits
72000
__________________________________________
3
Incremental Revenue = 8000*2
16000
Additional recovery of Fixed manufacturing overhead = 8000*7
56000
Less: Loss on contribution on regular units
=8000*(54-25-6-3-2)
-144000
Net Decrease in profits
-72000
Conclusion
Option
Amount $
1
Net increase in profits by
70880
2
Net increase in profits by
72000
3
Net Decrease in profits
-72000
Calculation of the impact on profits next year if this special order is accepted
Incremental Revenue
= 8000*(54 * (100%-16%))
362880
Less:
Direct Material Cost = 8000*25
-200000
Direct Labor Cost =8000*6
-48000
Variable Manufacturing Cost =8000*3
-24000
Variable Selling Expenses =8000*2*(1-75%)
-4000
Cost of Special Machine
-16000
Net increase in profits
70880