PROBLEM 12-22 Accept or Reject a Special Order L012-4] Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total $15 B Direct materials .............. Direct labor. Variable manufacturing overhead .. Fixed manufacturing overhead .... Variable selling expense. Fixed selling expense ... Total cost ... $450,000 240,000 90.000 270,000 120,000 180,000 $1,350,000 The Rets normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 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 5,000 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 5,000 units. This machine would cost $10,000. Polaski Company has no assurance that the retail chain will purchase add- tional units in the future. Determine the impact on profits next year if this special order is accepted. 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 5,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reim- burse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no vari- able selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year? Assume the same situation as that described in (2) above, except that the company expects to sell 30,000 Rets through regular channels next year. Thus, accepting the US Army's order would require giving up regular sales of 5,000 Rets. If the Army's order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channels?
Related questions
| 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 | ||||
| Direct materials | $ | 25 | $ | 800,000 | |
| Direct labor | 6 | 192,000 | |||
| Variable manufacturing overhead | 3 | 96,000 | |||
| Fixed manufacturing overhead | 7 | 224,000 | |||
| Variable selling expense | 4 | 128,000 | |||
| Fixed selling expense | 6 | 192,000 | |||
| Total cost | $ | 51 | $ | 1,632,000 | |
| The Rets normally sell for $56 each. Fixed manufacturing overhead is constant at $224,000 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 chainâs 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. Determine the impact on profits next year if this special order is accepted. |
| 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 pay a fixed fee of $1.60 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year? |
| 3. | Assume the same situation as that described in (2) above, except that the company expects to sell 32,000 Rets through regular channels next year. Thus, accepting the U.S. Armyâs order would require giving up regular sales of 7,000 Rets. If the Armyâs order is accepted, by how much will profits increase or decrease from what they would be if the 7,000 Rets were sold through regular channels? |
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 | $ | 20 | $ | 960,000 | |
| Direct labor | 6 | 288,000 | |||
| Variable manufacturing overhead | 3 | 144,000 | |||
| Fixed manufacturing overhead | 9 | 432,000 | |||
| Variable selling expense | 4 | 192,000 | |||
| Fixed selling expense | 6 | 288,000 | |||
| Total cost | $ | 48 | $ | 2,304,000 | |
The Rets normally sell for $53 each. Fixed manufacturing overhead is constant at $432,000 per year within the range of 40,000 through 48,000 Rets per year.
Required:
A. Assume that due to a recession, Polaski Company expects to sell only 40,000 Rets through regular channels next year. A large retail chain has offered to purchase 8,000 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 chainâs name on the 8,000 units. This machine would cost $16,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted.
B. Refer to the original data. Assume again that Polaski Company expects to sell only 40,000 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 pay a fixed fee of $1.60 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?
C. Assume the same situation as that described in (B) above, except that the company expects to sell 48,000 Rets through regular channels next year. Thus, accepting the U.S. Armyâs order would require giving up regular sales of 8,000 Rets. If the Armyâs order is accepted, by how much will profits increase or decrease from what they would be if the 8,000 Rets were sold through regular channels?
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 46,000 Rets per year. Costs associated with this level of production and sales are given below:
| Unit | Total | ||||
| Direct materials | $ | 25 | $ | 1,150,000 | |
| Direct labor | 8 | 368,000 | |||
| Variable manufacturing overhead | 3 | 138,000 | |||
| Fixed manufacturing overhead | 5 | 230,000 | |||
| Variable selling expense | 2 | 92,000 | |||
| Fixed selling expense | 6 | 276,000 | |||
| Total cost | $ | 49 | $ | 2,254,000 | |
The Rets normally sell for $54 each. Fixed manufacturing overhead is constant at $230,000 per year within the range of 41,000 through 46,000 Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 41,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 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 chainâs name on the 5,000 units. This machine would cost $10,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted.
Net profit increases/decreases by ________.
2. 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 5,000 Rets. The Army would pay a fixed fee of $1.40 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?
Net profit increases/decreases by_________.
3. Assume the same situation as that described in (2) above, except that the company expects to sell 46,000 Rets through regular channels next year. Thus, accepting the U.S. Armyâs order would require giving up regular sales of 5,000 Rets. If the Armyâs order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channels?
Net profit increases/decreases by _______?
