FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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:
Unit
Total
$ 20
$ 640,000
192,000
Direct materials
Direct labor
6
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expense
3
96,000
160,000
128,000
192,000
4
Fixed selling expense
6
Total cost
$ 44
$ 1,408,000
The Rets normally sell for $49 each. Fixed manufacturing overhead is $160,000 per year within the range of 25,000 through 32,000
Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 25,000 Rets through regular channels next year. A large retail
chain has offered to purchase 7,000 Rets if Polaski is willing to 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 to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. 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? (Round your intermediate calculations to 2 decimal places.)
2. Refer to the original data. Assume again that Polaski Company expects to sell only 25,000 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 (disadvantage) of accepting the U.S. Army's special order?
3. Assume the same situation as described in (2) above, except that 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 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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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: Unit Total $ 20 $ 640,000 192,000 Direct materials Direct labor 6 Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense 3 96,000 160,000 128,000 192,000 4 Fixed selling expense 6 Total cost $ 44 $ 1,408,000 The Rets normally sell for $49 each. Fixed manufacturing overhead is $160,000 per year within the range of 25,000 through 32,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 25,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Polaski is willing to 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 to engrave the retail chain's name on the 7,000 units. This machine would cost $14,000. 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? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 25,000 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 (disadvantage) of accepting the U.S. Army's special order? 3. Assume the same situation as described in (2) above, except that 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 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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