61%·3:35 AM 5.00 points Polaski Company manufactures and sells a single product
ID: 2578335 • Letter: 6
Question
61%·3:35 AM 5.00 points 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 s 25 ect materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost 150,000 460,000 138.000 414,000 92,000 276,000 2530,000 s 55 The Rets normally sell for $60 each. Fixed manufacturing overhead is constant at $414,000 per year within the range of 38,000 through 46,000 Rets per year. Required 1. Assume that due to a recession, Polaski Company expects to sell only 38,000 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 chain's 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. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 38,000 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? 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 Army's order would require giving up regular sales of 8,00o Rets. If the Army's order is accepted, by how much will profits increase or decrease from what they would be if theExplanation / Answer
1 Selling price 50.4 60(1-.16) Variable expense Direct material 25 Direct labor 10 variable manufacturing overhead 3 variable selling expense 0.5 Total variable expense 38.5 Net operating income 11.9 Number of units 8000 Total net operating income 95200 Machine cost 16000 Net profit increase 79200 2 Per unit Direct material 25 Direct labor 10 variable manufacturing overhead 3 Fixed manufacturing overheads 9 Fixed fees 1.4 Sales revenue 48.4 8000 units Per unit Total amount Selling price 48.4 387200 Less Variable expense Direct material 25 200000 Direct labor 10 80000 variable manufacturing overhead 3 24000 Total variable expense 38 304000 Net operating income 10.4 83200 Increase in profit by 83200 3 8000 units Per unit Selling price 48.4 Less Variable expense Direct material 25 Direct labor 10 variable manufacturing overhead 3 Total variable expense 38 Net operating income 10.4 Less Profit lost 11.6 (60-48.4) decrease in profit -1.2 Number of units 8000 Net profit decrease by -9600
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