Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $ 25 $ 1,200,000 Direct labor 8 384,000 Variable manufacturing overhead 3 144,000 Fixed manufacturing overhead 5 240,000 Variable selling expense 2 96,000 Fixed selling expense 6 288,000 Total cost $ 49 $ 2,352,000 The Rets normally sell for $54 each. Fixed manufacturing overhead is $240,000 per year within the range of 41,000 through 48,000 Rets per year. Refer to the original data. Assume again that Polaski Company expects to sell only 41,000 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 $1.40 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 or (disadvantage) of accepting the U.S. Army's special order?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...

See similar textbooks

Related questions

Concept explainers

Topic Video

Question

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below:

	Unit	Total
Direct materials	$ 25	$ 1,200,000
Direct labor	8	384,000
Variable manufacturing overhead	3	144,000
Fixed manufacturing overhead	5	240,000
Variable selling expense	2	96,000
Fixed selling expense	6	288,000
Total cost	$ 49	$ 2,352,000

The Rets normally sell for $54 each. Fixed manufacturing overhead is $240,000 per year within the range of 41,000 through 48,000 Rets per year.

Refer to the original data. Assume again that Polaski Company expects to sell only 41,000 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 $1.40 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 or (disadvantage) of accepting the U.S. Army's special order?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions