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 as follows: Unit Total Direct materials $ 19.00 $ 646,000 Direct labour 12.00 408,000 Variable manufacturing overhead 7.00 238,000 Fixed manufacturing overhead 13.00 442,000 Variable selling expense 4.00 136,000 Fixed selling expense 6.00 204,000 Total cost $ 61.00 $ 2,074,000 The Rets normally sell for $66 each. Fixed manufacturing overhead is constant at $442,000 per year within the range of 21,000 through 34,000 Rets per year. Required: 1. Assume that, due to a recession, Polaski Company expects to sell only 21,000 Rets through regular channels next year. A large retail chain has offered to purchase 13,000 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 13,000 units. This machine would cost $26,000. Polaski Company has no assurance that the retail chain will purchase additional units any time in the future. Determine the impact on profits next year if this special order is accepted. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 21,000 Rets through regular channels next year. The Canadian Forces would like to make a one-time-only purchase of 13,000 Rets. The Forces would pay a fixed fee of $2.00 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the Forces would pick up the Rets with its own trucks, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts this order, by how much will profits be increased or decreased for the year? 3. Assume that Polaski Company expects to sell only 34,000 Rets through regular channels next year. The Canadian Forces would like to make a one-time-only purchase of 13,000 Rets. The Forces would pay a fixed fee of $2.00 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Thus, accepting the Canadian Forces’ order would require giving up regular sales of 13,000 Rets. If the Forces’ order is accepted, by how much will profits be increased or decreased from what they would be if the 13,000 Rets were sold through regular channels?
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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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 as follows: |
| Unit | Total | |||||
| Direct materials | $ | 19.00 | $ | 646,000 | ||
| Direct labour | 12.00 | 408,000 | ||||
| Variable manufacturing |
7.00 | 238,000 | ||||
| Fixed manufacturing overhead | 13.00 | 442,000 | ||||
| Variable selling expense | 4.00 | 136,000 | ||||
| Fixed selling expense | 6.00 | 204,000 | ||||
| Total cost | $ | 61.00 | $ | 2,074,000 | ||
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The Rets normally sell for $66 each. Fixed manufacturing overhead is constant at $442,000 per year within the range of 21,000 through 34,000 Rets per year. |
| Required: |
| 1. |
Assume that, due to a recession, Polaski Company expects to sell only 21,000 Rets through regular channels next year. A large retail chain has offered to purchase 13,000 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 13,000 units. This machine would cost $26,000. Polaski Company has no assurance that the retail chain will purchase additional units any time in the future. Determine the impact on profits next year if this special order is accepted. |
| 2. |
Refer to the original data. Assume again that Polaski Company expects to sell only 21,000 Rets through regular channels next year. The Canadian Forces would like to make a one-time-only purchase of 13,000 Rets. The Forces would pay a fixed fee of $2.00 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the Forces would pick up the Rets with its own trucks, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts this order, by how much will profits be increased or decreased for the year? |
| 3. |
Assume that Polaski Company expects to sell only 34,000 Rets through regular channels next year. The Canadian Forces would like to make a one-time-only purchase of 13,000 Rets. The Forces would pay a fixed fee of $2.00 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Thus, accepting the Canadian Forces’ order would require giving up regular sales of 13,000 Rets. If the Forces’ order is accepted, by how much will profits be increased or decreased from what they would be if the 13,000 Rets were sold through regular channels? |
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