Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 10,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials £9 £ 90,000 Direct labour 5 50,000 Variable manufacturing overhead 2 20,000 Fixed manufacturing overhead 5 50,000 Variable selling expense 2 20,000 Fixed selling expense 4 40,000 Total cost 27 270,000 The Rets normally sell for £30 each. Fixed manufacturing overhead is constant at £800,000 per year within the range of 5,000 through 10,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 5,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 14% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 90%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost £15,000. 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. (Negative change in profit should be indicated with a minus sign.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 5,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts the order, by how much will profits be increased or decreased for the year? (Negative change in profit should be indicated with a minus sign.) 3. Refer to the original data. Assume that Polaski Company expects to sell 10,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. Thus, accepting the US Army's order would require giving up regular sales of 5,000 Rets. If the Army's order is accepted, by how much will profits be increased or decreased from what they would be if the 5,000 Rets were sold through regular channels? (Negative change in profit should be indicated with a minus sign.)

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 10,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials £9 £ 90,000 Direct labour 5 50,000 Variable manufacturing overhead 2 20,000 Fixed manufacturing overhead 5 50,000 Variable selling expense 2 20,000 Fixed selling expense 4 40,000 Total cost 27 270,000 The Rets normally sell for £30 each. Fixed manufacturing overhead is constant at £800,000 per year within the range of 5,000 through 10,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 5,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 14% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 90%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost £15,000. 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. (Negative change in profit should be indicated with a minus sign.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 5,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts the order, by how much will profits be increased or decreased for the year? (Negative change in profit should be indicated with a minus sign.) 3. Refer to the original data. Assume that Polaski Company expects to sell 10,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. Thus, accepting the US Army's order would require giving up regular sales of 5,000 Rets. If the Army's order is accepted, by how much will profits be increased or decreased from what they would be if the 5,000 Rets were sold through regular channels? (Negative change in profit should be indicated with a minus sign.)

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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Question

	Unit	Total
Direct materials	£9		£ 90,000
Direct labour	5		50,000
Variable manufacturing overhead	2		20,000
Fixed manufacturing overhead	5		50,000
Variable selling expense	2		20,000
Fixed selling expense	4		40,000
Total cost	27		270,000

The Rets normally sell for £30 each. Fixed manufacturing overhead is constant at £800,000 per year within the range of 5,000 through 10,000 Rets per year.

Required:
1.	Assume that due to a recession, Polaski Company expects to sell only 5,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 14% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 90%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost £15,000. 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. (Negative change in profit should be indicated with a minus sign.)

2.	Refer to the original data. Assume again that Polaski Company expects to sell only 5,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts the order, by how much will profits be increased or decreased for the year? (Negative change in profit should be indicated with a minus sign.)

3.	Refer to the original data. Assume that Polaski Company expects to sell 10,000 Rets through regular channels next year. The US Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of £1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own vans, there would be no variable selling expenses of any type associated with this order. Thus, accepting the US Army's order would require giving up regular sales of 5,000 Rets. If the Army's order is accepted, by how much will profits be increased or decreased from what they would be if the 5,000 Rets were sold through regular channels? (Negative change in profit should be indicated with a minus sign.)

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