Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total $ 20 $ 680,000 8 272,000 3 102,000 7 238,000 136,000 204,000 $ 1,632,000 The Rets normally sell for $53 each. Fixed manufacturing overhead is $238,000 per year within the range of 26,000 through 34,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 8,000 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 8,000 units. This machine would cost $16,000. 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. Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost 4 6 $ 48 2. Refer to the original data. Assume again that Polaski Company expects to sell only 26,000 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 $1.80 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 that the company expects to sell 34,000 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?

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 2CE
Question

Subject :-  Accounting

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce
and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below:
Total
Unit
$ 20 $ 680,000
8
272,000
3
102,000
7
238,000
4
136,000
6
204,000
$
$48
1,632,000
The Rets normally sell for $53 each. Fixed manufacturing overhead is $238,000 per year within the range of 26,000
through 34,000 Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next
year. A large retail chain has offered to purchase 8,000 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 8,000 units. This machine would cost $16,000. 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.
Direct materials.
Direct labor
Variable manufacturing
overhead
Fixed manufacturing
overhead
Variable selling
expense
Fixed selling expense
Total cost
2. Refer to the original data. Assume again that Polaski Company expects to sell only 26,000 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 $1.80 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 that the company expects to sell 34,000 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?
1.
2.
3.
Transcribed Image Text:Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below: Total Unit $ 20 $ 680,000 8 272,000 3 102,000 7 238,000 4 136,000 6 204,000 $ $48 1,632,000 The Rets normally sell for $53 each. Fixed manufacturing overhead is $238,000 per year within the range of 26,000 through 34,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 8,000 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 8,000 units. This machine would cost $16,000. 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. Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost 2. Refer to the original data. Assume again that Polaski Company expects to sell only 26,000 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 $1.80 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 that the company expects to sell 34,000 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? 1. 2. 3.
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