Polaski Company manufactures and sells a single product called a Ret. Operating
ID: 2513442 • Letter: P
Question
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 38,000 Rets per year. Costs associated with this level of production and sales are given below: Unit $ 15 10 Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost $570,000 380,000 114,000 266,000 152,000 228,000 1,710,000 6 $ 45 The Rets normally sell for $50 each. Fixed manufacturing overhead is $266,000 per year within the range of 31,000 through 38,000 Rets per yearExplanation / Answer
1) New contribution margin Selling price 50*(1-.16) 42 less :Variable expense Direct materials 15 Direct labor 10 variable manufacturing overhead 3 variable selling expense (4*25%) 1 total variable expense 29 -29 New contribution margin 13 total contribution margin (7000*13) 91000 less :cost of machine -14,000 Net income 77000 financail advantage 77,000 2) Fixed fee 1.6 Fixed manufacturing overhead reimbursed 7 total 8.6 total contribution 7000*8.6 60200 financial advantage 60,200 (note though VMOH is also reimbursed ,it is not considered as the same amount will be incurred in production also) 3) original contribution margin per unit Selling price 50 less :Variable expense Direct materials 15 Direct labor 10 variable manufacturing overhead 3 variable selling expense 4 total variable expense 32 -32 New contribution margin 18 contribution lost (7000*18) -126000 income from Army order 60,200 Net loss -65800 Net profit will decrease by -65800 financial disadvantage 65,800 answer