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: Unit Total Direct materials $ 20 $ 720,000 Direct labor 6 216,000 Variable manufacturing overhead 3 108,000 Fixed manufacturing overhead 9 324,000 Variable selling expense 4 144,000 Fixed selling expense 6 216,000 Total cost $ 48 $ 1,728,000 The Rets normally sell for $53 each. Fixed manufacturing overhead is $324,000 per year within the range of 28,000 through 36,000 Rets per year. 1. Refer to the original data. Assume again that Polaski Company expects to sell only 28,000 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 $1.40 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. 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? 2. Assume the same situation as described in (1) above, except that the company expects to sell 36,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 8,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
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:
| Unit | Total | ||||||
| Direct materials | $ | 20 | $ | 720,000 | |||
| Direct labor | 6 | 216,000 | |||||
| Variable manufacturing |
3 | 108,000 | |||||
| Fixed manufacturing overhead | 9 | 324,000 | |||||
| Variable selling expense | 4 | 144,000 | |||||
| Fixed selling expense | 6 | 216,000 | |||||
| Total cost | $ | 48 | $ | 1,728,000 | |||
The Rets normally sell for $53 each. Fixed manufacturing overhead is $324,000 per year within the range of 28,000 through 36,000 Rets per year.
1. Refer to the original data. Assume again that Polaski Company expects to sell only 28,000 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 $1.40 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. 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?
2. Assume the same situation as described in (1) above, except that the company expects to sell 36,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 8,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
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