Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $ 720,000 10 360,000 3 108,000 5 180,000 2 72,000 6 216,000 $ 46 $ 1,656,000 The Rets normally sell for $51 each. Fixed manufacturing overhead is $180,000 per year within the range of 30,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 30,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 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 6,000 units. This machine would cost $12,000. 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? Note: Round your Intermediate calculations to 2 decimal places. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 30,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the company's absorption costing system, plus it would pay an additional fee of $1.40 per unit. 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? 1. 2.
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $ 720,000 10 360,000 3 108,000 5 180,000 2 72,000 6 216,000 $ 46 $ 1,656,000 The Rets normally sell for $51 each. Fixed manufacturing overhead is $180,000 per year within the range of 30,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 30,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 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 6,000 units. This machine would cost $12,000. 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? Note: Round your Intermediate calculations to 2 decimal places. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 30,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the company's absorption costing system, plus it would pay an additional fee of $1.40 per unit. 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? 1. 2.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell
36,000 Rets per year. Costs associated with this level of production and sales are given below:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expense
Fixed selling expense
Total cost
Unit
Total
$ 20
$ 720,000
10
360,000
3
108,000
5
180,000
2
72,000
6
216,000
$ 46
$ 1,656,000
The Rets normally sell for $51 each. Fixed manufacturing overhead is $180,000 per year within the range of 30,000 through 36,000
Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 30,000 Rets through regular channels next year. A large
retail chain has offered to purchase 6,000 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 6,000 units. This machine would cost $12,000. 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?
Note: Round your Intermediate calculations to 2 decimal places.
2. Refer to the original data. Assume again that Polaski Company expects to sell only 30,000 Rets through regular channels next year.
The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would reimburse Polaski for all of the variable
and fixed production costs assigned to the units by the company's absorption costing system, plus it would pay an additional fee of
$1.40 per unit. 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?
1.
2.
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