Refer to the original data. Assume again that Polaski Company expects to sell on
ID: 2480061 • Letter: R
Question
Refer to the original data. Assume again that Polaski Company expects to sell only 36,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 10,000 Rets. The Army would pay a fixed fee of $1.20 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?
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. Army’s order would require giving up regular sales of 10,000 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what they would be if the 10,000 Rets were sold through regular channels?
2.Refer to the original data. Assume again that Polaski Company expects to sell only 36,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 10,000 Rets. The Army would pay a fixed fee of $1.20 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?
Explanation / Answer
If special order is accepted Profit will be
A)Regular sales =36000*60=2160000
Cost =36000*55=1980000
Profit $180000
By accepting retail chain offer
Discount on price is 16% i.e Price after discount is 60-16%=50.40*10000=504000
Material 25
Labour 10
Variable over head 3
Variable selling expenses 2-75% =. 0.5
Total variable cost 28.5 10000*28.5 =285000
Cost of machinery 20000
Profit 199000
2.If Army would like to make a one-time-only purchase of 10,000 Rets for fixed fee profit by this offer is =10000*1.2=12000
3.If 46000 sell on regular basis
Profit by sell =46000*(60-55)=230000
Ie for 10000 units by regular sale profit is 10000*5=50000
by sale through army order profit is 12000
Loss 38000
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