**Polaski Company Overview and Cost Analysis**Polaski Company manufactures and sells a single product called a Ret. At full capacity, the company can produce and sell 46,000 Rets per year. Below are the detailed costs associated with this level of production and sales:| Cost Component | Unit Cost ($) | Total Cost ($) ||-------------------------------|-------------|------------------|| Direct materials | 20 | 920,000 || Direct labor | 6 | 276,000 || Variable manufacturing overhead | 3 | 138,000 || Fixed manufacturing overhead | 7 | 322,000 || Variable selling expense | 4 | 184,000 || Fixed selling expense | 6 | 276,000 || **Total cost** | **46** | **2,116,000** |The Rets usually sell for $51 each. The fixed manufacturing overhead is $322,000 annually, applicable for production levels between 39,000 and 46,000 Rets. ### Scenarios for Consideration**1. Special Order Proposal:**Due to a recession, Polaski Company anticipates selling only 39,000 Rets through its usual channels in the next year. A large retail chain proposes to purchase 7,000 Rets if Polaski agrees to a 16% discount on the standard price. This offer eliminates sales commissions, reducing variable selling expenses by 75%. However, Polaski must spend $14,000 on a special machine for engraving the retail chain’s name on these units. There is no guarantee of future orders from the retail chain. Calculate the financial impact of accepting this special order, rounding intermediate calculations to two decimal places.**2. U.S. Army Proposal:**Assuming again a sales expectation of 39,000 Rets next year, the U.S. Army expresses interest in a one-time purchase of 7,000 Rets. The Army offers a fixed fee of $1.80 per Ret, covering all production costs, both variable and fixed. Since the Army would handle transportation, no variable selling expenses would apply.This analysis is crucial for understanding the financial decisions and potential impacts related to the Polaski Company's production and sales strategies. **Exercise: Analyzing Special Orders and Financial Impacts**1. **Scenario Analysis** Evaluate the scenario where there would be no sales commissions on an order, leading to a 75% reduction in variable selling expenses. Polaski Company would need to buy a special machine costing $14,000 to engrave the retail chain’s name on 7,000 units. Without assurance of future orders, calculate the financial advantage or disadvantage of accepting this special order. **Round your intermediate calculations to 2 decimal places.**2. **U.S. Army Order Analysis** Using the original data, assume Polaski Company plans to sell only 39,000 Rets through regular channels next year. The U.S. Army offers a one-time purchase of 7,000 Rets at a fixed fee of $1.80 per Ret. The Army covers all production costs (variable and fixed) with no added variable selling expenses as they handle pickup. Calculate the financial advantage or disadvantage of accepting this special order.3. **Adjusted Sales Scenario** Consider the same situation as scenario 2, but now Polaski Company expects to sell 46,000 Rets through regular channels. Accepting the Army's order means sacrificing regular sales of 7,000 Rets. Determine the financial advantage or disadvantage of this situation.**Table Summary**- 1. Financial advantage - 2. Financial advantage - 3. Financial (disadvantage) This exercise is designed to help understand the financial implications of accepting special orders and how they can impact regular sales and profitability.

Solution 1: Regular Selling price $51.00 Less: Discount 16% Selling price for…

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, sell 46,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total $ 20 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 920,000 276,000 138,000 322,000 184,000 276,000 $ 2,116,000 6. 3. 4. $ 46 Total cost The Rets normally sell for $51 each. Fixed manufacturing overhead is $322,000 per year within the range of 39,000 through 46,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 39,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 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 7,000 units. This machine would cost $14,000. 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 39,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.80 roimhurse Ponlaski Company for all costs of production (variable and fixed) associated with the units.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q