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Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine for $16,000 to engrave the retail chain's name on the 8,000 units. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? Note: Round your intermediate calculations to 2 decimal places.

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine for $16,000 to engrave the retail chain's name on the 8,000 units. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? Note: Round your intermediate calculations to 2 decimal places.

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $ 640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine for $16,000 to engrave the retail chain's name on the 8,000 units. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? Note: Round your intermediate calculations to 2 decimal places. 2. Refer to the original data. Assume Polaski Company expects to sell 24,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 8,000 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 $2.00 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? 3. Assume the same situation as described in (2) above, except the company expects to sell 32,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 8,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
Transcribed Image Text:Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 32,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit Total $ 20 $ 640,000 10 320,000 3 96,000 9 288,000 4 128,000 6 192,000 $ 52 $ 1,664,000 The Rets normally sell for $57 each. Fixed manufacturing overhead is $288,000 per year within the range of 24,000 through 32,000 Rets per year. Required: 1. Assume due to a recession, Polaski Company expects to sell only 24,000 Rets through regular channels next year. A large retail chain offered to purchase 8,000 Rets if Polaski will accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine for $16,000 to engrave the retail chain's name on the 8,000 units. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? Note: Round your intermediate calculations to 2 decimal places. 2. Refer to the original data. Assume Polaski Company expects to sell 24,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 8,000 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 $2.00 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? 3. Assume the same situation as described in (2) above, except the company expects to sell 32,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 8,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
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