Polaski Company manufactures andsells a single product called a Ret. Operating at capacity, thecompany can produce and sell 46,000 Rets per year. Costs associatedwith this level of production and sales are given below:
Unit Total Directmaterials $ 20 $ 920,000 Direct labor 8 368,000 Variablemanufacturing overhead 3 138,000 Fixed manufacturingoverhead 7 322,000 Variable sellingexpense 2 92,000 Fixed sellingexpense 6 276,000 Total cost $ 46 $ 2,116,000
The Rets normally sell for $51each. Fixed manufacturing overhead is constant at $322,000 per yearwithin the range of 39,000 through 46,000 Rets per year.
Required: 1. Assume that due to a recession, Polaski Company expects to sellonly 39,000 Rets through regular channels next year. A large retailchain has offered to purchase 7,000 Rets if Polaski is willing toaccept a 16% discount off the regular price. There would be nosales commissions on this order; thus, variable selling expenseswould be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chainâs name onthe 7,000 units. This machine would cost $14,000. Polaski Companyhas no assurance that the retail chain will purchase additionalunits in the future. Determine the impact on profits next year ifthis special order is accepted.
2. Refer to the original data. Assume again that Polaski Companyexpects to sell only 39,000 Rets through regular channels nextyear. The U.S. Army would like to make a one-time-only purchase of7,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and itwould reimburse Polaski Company for all costs of production(variable and fixed) associated with the units. Because the armywould pick up the Rets with its own trucks, there would be novariable selling expenses associated with this order. If PolaskiCompany accepts the order, by how much will profits increase ordecrease for the year?
3. Assume the same situation as that described in (2) above, exceptthat the company expects to sell 46,000 Rets through regularchannels next year. Thus, accepting the U.S. Armyâs order wouldrequire giving up regular sales of 7,000 Rets. If the Armyâs orderis accepted, by how much will profits increase or decrease fromwhat they would be if the 7,000 Rets were sold through regularchannels?
| Polaski Company manufactures andsells a single product called a Ret. Operating at capacity, thecompany can produce and sell 46,000 Rets per year. Costs associatedwith this level of production and sales are given below: |
| Unit | Total | ||||
| Directmaterials | $ | 20 | $ | 920,000 | |
| Direct labor | 8 | 368,000 | |||
| Variablemanufacturing overhead | 3 | 138,000 | |||
| Fixed manufacturingoverhead | 7 | 322,000 | |||
| Variable sellingexpense | 2 | 92,000 | |||
| Fixed sellingexpense | 6 | 276,000 | |||
| Total cost | $ | 46 | $ | 2,116,000 | |
| The Rets normally sell for $51each. Fixed manufacturing overhead is constant at $322,000 per yearwithin the range of 39,000 through 46,000 Rets per year. |
| Required: | |
| 1. | Assume that due to a recession, Polaski Company expects to sellonly 39,000 Rets through regular channels next year. A large retailchain has offered to purchase 7,000 Rets if Polaski is willing toaccept a 16% discount off the regular price. There would be nosales commissions on this order; thus, variable selling expenseswould be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chainâs name onthe 7,000 units. This machine would cost $14,000. Polaski Companyhas no assurance that the retail chain will purchase additionalunits in the future. Determine the impact on profits next year ifthis special order is accepted. |
| 2. | Refer to the original data. Assume again that Polaski Companyexpects to sell only 39,000 Rets through regular channels nextyear. The U.S. Army would like to make a one-time-only purchase of7,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and itwould reimburse Polaski Company for all costs of production(variable and fixed) associated with the units. Because the armywould pick up the Rets with its own trucks, there would be novariable selling expenses associated with this order. If PolaskiCompany accepts the order, by how much will profits increase ordecrease for the year? |
| 3. | Assume the same situation as that described in (2) above, exceptthat the company expects to sell 46,000 Rets through regularchannels next year. Thus, accepting the U.S. Armyâs order wouldrequire giving up regular sales of 7,000 Rets. If the Armyâs orderis accepted, by how much will profits increase or decrease fromwhat they would be if the 7,000 Rets were sold through regularchannels? |
Related questions
| Polaski Company manufactures andsells a single product called a Ret. Operating at capacity, thecompany can produce and sell 46,000 Rets per year. Costs associatedwith this level of production and sales are given below: |
| Unit | Total | ||||
| Directmaterials | $ | 20 | $ | 920,000 | |
| Direct labor | 8 | 368,000 | |||
| Variablemanufacturing overhead | 3 | 138,000 | |||
| Fixed manufacturingoverhead | 7 | 322,000 | |||
| Variable sellingexpense | 4 | 184,000 | |||
| Fixed sellingexpense | 6 | 276,000 | |||
| Total cost | $ | 48 | $ | 2,208,000 | |
| The Rets normally sell for $53each. Fixed manufacturing overhead is constant at $322,000 per yearwithin the range of 38,000 through 46,000 Rets per year. |
| Required: | ||||||||
| 1. | Assume that due to a recession, Polaski Company expects to sellonly 38,000 Rets through regular channels next year. A large retailchain has offered to purchase 8,000 Rets if Polaski is willing toaccept a 16% discount off the regular price. There would be nosales commissions on this order; thus, variable selling expenseswould be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chainâs name onthe 8,000 units. This machine would cost $16,000. Polaski Companyhas no assurance that the retail chain will purchase additionalunits in the future. Determine the impact on profits next year ifthis special order is accepted. | |||||||
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| 2. | Refer to the original data. Assume again that Polaski Companyexpects to sell only 38,000 Rets through regular channels nextyear. The U.S. Army would like to make a one-time-only purchase of8,000 Rets. The Army would pay a fixed fee of $1.60 per Ret, and itwould reimburse Polaski Company for all costs of production(variable and fixed) associated with the units. Because the armywould pick up the Rets with its own trucks, there would be novariable selling expenses associated with this order. If PolaskiCompany accepts the order, by how much will profits increase ordecrease for the year? | |||||||
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| 3. | Assume the same situation as that described in (2) above, exceptthat the company expects to sell 46,000 Rets through regularchannels next year. Thus, accepting the U.S. Armyâs order wouldrequire giving up regular sales of 8,000 Rets. If the Armyâs orderis accepted, by how much will profits increase or decrease fromwhat they would be if the 8,000 Rets were sold through regularchannels? | |||||||
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| Polaski Company manufactures andsells a single product called a Ret. Operating at capacity, thecompany can produce and sell 46,000 Rets per year. Costs associatedwith this level of production and sales are given below: |
| Unit | Total | ||||
| Directmaterials | $ | 15 | $ | 690,000 | |
| Direct labor | 6 | 276,000 | |||
| Variablemanufacturing overhead | 3 | 138,000 | |||
| Fixed manufacturingoverhead | 7 | 322,000 | |||
| Variable sellingexpense | 2 | 92,000 | |||
| Fixed sellingexpense | 6 | 276,000 | |||
| Total cost | $ | 39 | $ | 1,794,000 | |
| The Rets normally sell for $44each. Fixed manufacturing overhead is constant at $322,000 per yearwithin the range of 38,000 through 46,000 Rets per year. |
| Required: | |||||||||||||||||
| 1. | Assume that due to a recession, Polaski Company expects to sellonly 38,000 Rets through regular channels next year. A large retailchain has offered to purchase 8,000 Rets if Polaski is willing toaccept a 16% discount off the regular price. There would be nosales commissions on this order; thus, variable selling expenseswould be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chainâs name onthe 8,000 units. This machine would cost $16,000. Polaski Companyhas no assurance that the retail chain will purchase additionalunits in the future. Determine the impact on profits next year ifthis special order is accepted. | ||||||||||||||||
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3.
Assume the same situation as that described in (2) above, exceptthat the company expects to sell 46,000 Rets through regularchannels next year. Thus, accepting the U.S. Armyâs order wouldrequire giving up regular sales of 8,000 Rets. If the Armyâs orderis accepted, by how much will profits increase or decrease fromwhat they would be if the 8,000 Rets were sold through regularchannels?
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| Polaski Company manufactures andsells a single product called a Ret. Operating at capacity, thecompany can produce and sell 44,000 Rets per year. Costs associatedwith this level of production and sales are given below: |
| Unit | Total | ||||
| Directmaterials | $ | 20 | $ | 880,000 | |
| Direct labor | 6 | 264,000 | |||
| Variablemanufacturing overhead | 3 | 132,000 | |||
| Fixed manufacturingoverhead | 9 | 396,000 | |||
| Variable sellingexpense | 2 | 88,000 | |||
| Fixed sellingexpense | 6 | 264,000 | |||
| Total cost | $ | 46 | $ | 2,024,000 | |
| The Rets normally sell for $51each. Fixed manufacturing overhead is constant at $396,000 per yearwithin the range of 36,000 through 44,000 Rets per year. |
| Required: | |
| 1. | Assume that due to a recession, Polaski Company expects to sellonly 36,000 Rets through regular channels next year. A large retailchain has offered to purchase 8,000 Rets if Polaski is willing toaccept a 16% discount off the regular price. There would be nosales commissions on this order; thus, variable selling expenseswould be slashed by 75%. However, Polaski Company would have topurchase a special machine to engrave the retail chainâs name onthe 8,000 units. This machine would cost $16,000. Polaski Companyhas no assurance that the retail chain will purchase additionalunits in the future. Determine the impact on profits next year ifthis special order is accepted. |
| 2. | Refer to the original data. Assume again that Polaski Companyexpects to sell only 36,000 Rets through regular channels nextyear. The U.S. Army would like to make a one-time-only purchase of8,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and itwould reimburse Polaski Company for all costs of production(variable and fixed) associated with the units. Because the armywould pick up the Rets with its own trucks, there would be novariable selling expenses associated with this order. If PolaskiCompany accepts the order, by how much will profits increase ordecrease for the year? |
| 3. | Assume the same situation as that described in (2) above, exceptthat the company expects to sell 44,000 Rets through regularchannels next year. Thus, accepting the U.S. Armyâs order wouldrequire giving up regular sales of 8,000 Rets. If the Armyâs orderis accepted, by how much will profits increase or decrease fromwhat they would be if the 8,000 Rets were sold through regularchannels? |
