Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 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 $640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will 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 for $16,000 to engrave the retail chain's name on the 8,000 units. 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.
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 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 $640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will 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 for $16,000 to engrave the retail chain's name on the 8,000 units. 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.
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
32,000 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
$ 640,000
10
320,000
3
96,000
9
288,000
4
128,000
6
192,000
$ 52
$ 1,664,000
The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000
Rets per year.
Required:
1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail
chain offered to purchase 8,000 Rets if Polaski will 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 for $16,000 to engrave the retail chain's name on the 8,000 units. 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 Polaski Company expects to sell 24,000 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 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 $2.00 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?
3. Assume the same situation as described in (2) above, except the company expects to sell 32,000 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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