Refer to the original data. Assume again that Polaski Company expects to sell only 43,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 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 $1.20 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? Capacity is 50,000 rets Unit Total Direct materials $ 15 $ 750,000 Direct labor 8 400,000 Variable manufacturing overhead 3 150,000 Fixed manufacturing overhead 7 350,000 Variable selling expense 2 100,000 Fixed selling expense 6 300,000 Total cost $ 41 $ 2,050,000
Refer to the original data. Assume again that Polaski Company expects to sell only 43,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 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 $1.20 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? Capacity is 50,000 rets Unit Total Direct materials $ 15 $ 750,000 Direct labor 8 400,000 Variable manufacturing overhead 3 150,000 Fixed manufacturing overhead 7 350,000 Variable selling expense 2 100,000 Fixed selling expense 6 300,000 Total cost $ 41 $ 2,050,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- Refer to the original data. Assume again that Polaski Company expects to sell only 43,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 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 $1.20 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? Capacity is 50,000 rets
Unit Total Direct materials $ 15 $ 750,000 Direct labor 8 400,000 Variable manufacturing overhead 3 150,000 Fixed manufacturing overhead 7 350,000 Variable selling expense 2 100,000 Fixed selling expense 6 300,000 Total cost $ 41 $ 2,050,000
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- Assume the same situation as described in (2) above, except that the company expects to sell 50,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 7,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
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