Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Direct materials $25 Total $1,000,000 Direct labor 8 320,000 Variable manufacturing overhead Fixed manufacturing overhead 3 120,000 5 200,000 Variable selling expense 4 160,000 Fixed selling expense 6 240,000 $ 51 $ 2,040,000 Total cost The Rets normally sell for $56 each. Fixed manufacturing overhead is $200,000 per year within the range of 31,000 through 40,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 31,000 Rets through regular channels next year. A large retail chain has offered to purchase 9,000 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 9,000 units. This machine would cost $18,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Direct materials $25 Total $1,000,000 Direct labor 8 320,000 Variable manufacturing overhead Fixed manufacturing overhead 3 120,000 5 200,000 Variable selling expense 4 160,000 Fixed selling expense 6 240,000 $ 51 $ 2,040,000 Total cost The Rets normally sell for $56 each. Fixed manufacturing overhead is $200,000 per year within the range of 31,000 through 40,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 31,000 Rets through regular channels next year. A large retail chain has offered to purchase 9,000 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 9,000 units. This machine would cost $18,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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
40,000 Rets per year. Costs associated with this level of production and sales are given below:
Total
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
50
Variable selling expense
Fixed selling expense
Unit
$ 25
$ 1,000,000
8
320,000
3
120,000
5
200,000
4
6
160,000
240,000
$ 51
$ 2,040,000
Total cost
The Rets normally sell for $56 each. Fixed manufacturing overhead is $200,000 per year within the range of 31,000 through 40,000
Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 31,000 Rets through regular channels next year. A large retail
chain has offered to purchase 9,000 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 9,000 units. This machine would cost $18,000. 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?
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