2. Refer to the original data. Assume again that Polaski Company expects to sell

Question

2. Refer to the original data. Assume again that Polaski Company expects to sell only 34,000 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 $1.40 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 by 3. Assume the same situation as that described in (2) above, except that the company expects to sell 42,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 8,000 Rets. If the Armys 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? Net profit by

Explanation / Answer

Answer:

1

Working

Calculation of the impact on profits next year if this special order is accepted

Incremental Revenue
= 8000*(53 * (1-16%))

356160

Less:

Direct Material Cost = 8000*20

-160000

Direct Labor Cost =8000*8

-64000

Variable Manufacturing Cost =8000*3

-24000

Variable Selling Expenses =8000*4*(1-75%)

-8000

Cost of Special Machine

-16,000

Net increase in profits

84160

Option

Amount $

1

Net increase in profits by

84160

__________________________________________________________________

2

Calculation of the impact on profits next year if this special order is accepted

Incremental Revenue = 8000*1.8

11200

Additional recovery of   Fixed manufacturing overhead = 8000*7

56000

Net increase in profits

67200

Option

Amount $

2

Net increase in profits by

67200

_____________________________________________________

3

Incremental Revenue = 8000*1.4

11200

Additional recovery of   Fixed manufacturing overhead = 8000*7

56000

Less: Loss on contribution on regular units
=8000*(53-20-8-3-4)

-144000

Net Decrease in profits

-76800

Option

Amount $

3

Net Decrease in profits

-76800

Calculation of the impact on profits next year if this special order is accepted

Incremental Revenue
= 8000*(53 * (1-16%))

356160

Less:

Direct Material Cost = 8000*20

-160000

Direct Labor Cost =8000*8

-64000

Variable Manufacturing Cost =8000*3

-24000

Variable Selling Expenses =8000*4*(1-75%)

-8000

Cost of Special Machine

-16,000

Net increase in profits

84160

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.