Polaski Company manufactures and sells a single product called a Ret. Operating
ID: 2583836 • Letter: P
Question
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost s15 $ 720,000 384,000 144,000 432,000 192,000 288,000 s 2,160,000 $ 45 The Rets normally sell for $50 each. Fixed manufacturing overhead is $432,000 per year within the range of 39,000 through 48,000 Rets per yearExplanation / Answer
Answer for question no.1:
Variable cost of 39,000 units sale =
$15(Direct materials)+$8(Direct labour)+$3(Variable manufacturing overhead)+$4(Variable selling expenses)
=$30.
Contribution earned on 39000 untis per unit=$50-$30=$20.
Total contribution earned=$20*39000 units
=$780,000.
Fixed manufacturing and fixed selling expenses=$432,000+$288,000
=$720,000.
Net revenue from the sale of 39000 units=$780,000-$720,000
=$60,000.
Revised selling price=$50*(1-.16)
=$42.
Revised variable cost for this order
= $15(Direct materials)+$8(Direct labour)+$3(Variable manufacturing overhead)+$4*25%(Variable selling expenses)
=$27.
Contribution for this order=Selling price-Variablel cost
=$42-$27
=$15.
Increase in fixed costs=$18,000.(As the normal sales is able to cover the fixed manufacturing and selling expenses)
Revenue generated from this order=$15*9000 -$18,000
=$135,000-$18,000
=$117,000.
Financial advantage of accepting the order=$117,000.
Answer for question no.2:
Amount received on the order is the cost of manufacturing per unit+$1.2 per unit
Cost of manufacturing=$15(Direct materials)+$8(Direct labour)+$3(Variable manufacturing overhead)+$9(Manufacturing overhead).
=$35.
Therefore amount received on the order=$35+$1.2
=$36.2.
Contribution received on this order=(Selling price- Variable costs)*9000
=($36.2-$15(Direct materials)+$8(Direct labour)+$3(Variable manufacturing overhead))*9000
=($36.2 - $26.)*9000
=$10.2*9000
=$91,800.
Therefore financial advantage of accepting this order=$91,800.
Answer for question no.3:
Contribution earned by selling 9000 units through regular channels =9000*$20(as calculated in answer to question no.1)
=$180,000.
Contribution earned by sellin to Army=$91,800.
Net disadvantage of accepting US army order=$180,000 -$91,800
=$88,200.