Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell34,000 Rets per year. Costs associated with this level of production and sales are given below:UnitTotalDirect materials$ 15510,000272,000102,000170,00068,000Direct labor8Variable manufacturing overheadFixed manufacturing overheadVariable selling expenseFixed selling expense352.6204,000Total cost$ 39$ 1,326,000The Rets normally sell for $44 each. Fixed manufacturing overhead is $170,000 per year within the range of 28,000 through 34,000Rets per year.Required:1. Assume that due to a recession, Polaski Company expects to sell only 28,000 Rets through regular channels next year. A large retailchain has offered to purchase 6,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no salescommissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chain's name on the 6,000 units. This machine would cost $12,000. Polaski Companyhas no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) ofaccepting the special order? (Round your intermediate calculations to 2 decimal places.)2. 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 6,000 Rets. The Army would pay a fixed fee of $1.40 per Ret, and itwould reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army wouldpick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financialadvantage (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 channelsnext year. Thus, accepting the U.S. Army's order would require giving up regular sales of 6,000 Rets. Given this new information, whatis the financial advantage (disadvantage) of accepting the U.S. Army's special order?1.2.3.

Name: Polaski Company manufactures and sells a single product called a Ret.
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Description: Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell34,000 Rets per year. Costs associated with this level of production and sales are given below:UnitTotalDirect materials$ 15

Fixed costs are the costs that do not change with the change in the level of output. Whereas,…

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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 given below: Unit Total Direct materials $ 15 $ 510,000 272,000 102,000 170,000 68,000 204,000 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 2. 6 Total cost $ 39 $ 1,326,000

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 Direct materials $ 15 $ 510,000 272,000 102,000 170,000 68,000 204,000 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 2. 6 Total cost $ 39 $ 1,326,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following information relates to the unit product cost for a product manufactured by Nelson Industrial Company:Direct materials: $24 Direct Labor: 15 Variable overhead: 30 Fixed overhead: 18 Unit cost: 87 Line Item Description Cost Direct materials $24 Direct labor 15 Variable overhead 30 Fixed overhead 18 Unit cost $87 In addition, fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 100,000 units for $90 each.If the firm produces the special order, the effect on income would be a(n): a. increase of $1.050,000. b. decrease of $900,000. c. decrease of $1,0500,000. d. increase of $900,000.
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