Psaki Inc. manufactures and sells a single product called a Shiner. Operating at capacity, the company can produce and sell 22,000 Shiners per year. Costs associated with this level of production and sales are as follows: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $16.00 $ 352,000 9.00 198,000 4.00 88,000 10.00 220,000 4.00 88,000 6.00 132,000 $49.00 $1,078,000 The Shiners normally sell for $54 each. Fixed manufacturing overhead is constant at $220,000 per year within the range of 15,000 through 22,000 Shiners per year. Required: 1. Assume that, due to a recession, Psaki Company expects to sell only 15,000 Shiners through regular channels next year. A large retail chain has offered to purchase 7,000 Shiners if Psaki is willing to accept a price lower than the regular $54. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Psaki Company would have to purchase a special machine to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. Psaki Company has no assurance that the retail chain will purchase additional units anytime in the future. Determine the maximum discount that Psaki can offer to this large retail chain in order for it to be no worse off compared to its current profit. (Do not round intermediate calculations. Round your percentage answer to nearest whole number.)
Psaki Inc. manufactures and sells a single product called a Shiner. Operating at capacity, the company can produce and sell 22,000 Shiners per year. Costs associated with this level of production and sales are as follows: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $16.00 $ 352,000 9.00 198,000 4.00 88,000 10.00 220,000 4.00 88,000 6.00 132,000 $49.00 $1,078,000 The Shiners normally sell for $54 each. Fixed manufacturing overhead is constant at $220,000 per year within the range of 15,000 through 22,000 Shiners per year. Required: 1. Assume that, due to a recession, Psaki Company expects to sell only 15,000 Shiners through regular channels next year. A large retail chain has offered to purchase 7,000 Shiners if Psaki is willing to accept a price lower than the regular $54. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Psaki Company would have to purchase a special machine to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. Psaki Company has no assurance that the retail chain will purchase additional units anytime in the future. Determine the maximum discount that Psaki can offer to this large retail chain in order for it to be no worse off compared to its current profit. (Do not round intermediate calculations. Round your percentage answer to nearest whole number.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Psaki Inc. manufactures and sells a single product called a Shiner. Operating at capacity, the company can produce and sell 22,000
Shiners per year. Costs associated with this level of production and sales are as follows:
Direct materials
Direct labour
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expense
Fixed selling expense
Total cost
Unit
Total
$16.00 $ 352,000
9.00
198,000
4.00
88,000
10.00
220,000
4.00
88,000
132,000
6.00
$49.00
$1,078,000
The Shiners normally sell for $54 each. Fixed manufacturing overhead is constant at $220,000 per year within the range of 15,000
through 22,000 Shiners per year.
Required:
1. Assume that, due to a recession, Psaki Company expects to sell only 15,000 Shiners through regular channels next year. A large
retail chain has offered to purchase 7,000 Shiners if Psaki is willing to accept a price lower than the regular $54. There would be no
sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Psaki Company would have to
purchase a special machine to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. Psaki Company
has no assurance that the retail chain will purchase additional units anytime in the future. Determine the maximum discount that Psaki
can offer to this large retail chain in order for it to be no worse off compared to its current profit. (Do not round intermediate
calculations. Round your percentage answer to nearest whole number.)
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