10 Check my work 5 Problem 12-22 Special Order Decisions [LO12-4] Polaskl Compan
ID: 2583912 • Letter: 1
Question
10 Check my work 5 Problem 12-22 Special Order Decisions [LO12-4] Polaskl Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are glven below 10 points Unit s 28 18 Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost $ 80e,888 488,888 128,8e8 368,888 88,888 248,888 $ 2,ee,8ee eBook $ 58 Print The Rets normally sell for $55 each. Fixed manufacturing overhead Is $360,000 per year within the range of 34,000 through 40,000 Rets per year. References Requlred 1. Assume that due to a recession, Polaskl Company expects to sell only 34,000 Rets through regular channels next year. A large retall chain has offered to purchase 6,000 Rets if Polaskl 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 retall chain's name on the 6,000 units. This machine would cost $12,000. Polaskl Company has no assurance that the retall chaln will purchase additional units In the future. What is the financial advantage (disadvantage) of accepting the speclal order? 2. Refer to the original data. Assume agaln that Polaskl 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 6,000 Rets. The Army would pay a fixed fee of $1.60 per Ret, and it would relmburse Polaskl Company for all costs of production (variable and fixed) associated with the unlts. Because the army would pick up the Rets with Its own trucks, there would be no varlable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's speclal order? 3. Assume the same sltuation as described In (2) above, except that the company expects to sell 40,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 6,000 Rets. Given this new Information, what is the financlal advantage (disadvantage) of accepting the U.S. Army's special order?Explanation / Answer
Offer for 6000 units
Per unit
Accepting Offer
Not accepting Offer
Direct Material
20
800000
680000
Direct Labor
10
400000
340000
Variable Manufacturing overhead
3
120000
102000
Fixed Manufacturing overhead
9
360000
360000
Variable Selling Expense
0.5
20000
17000
Fixed Selling Expense
6
240000
240000
Cost of Equipment
12000
Cost of Production
1952000
1739000
Sales
46.2
2147200
1870000
Profit
195200
131000
The offer should be accepted
2. U.S. Army Proposal
Offer for 6000 units
Per unit
Accepting Offer
Not accepting Offer
Direct Material
20
680000
680000
Direct Labor
10
340000
340000
Variable Manufacturing overhead
3
102000
102000
Fixed Manufacturing overhead
9
360000
360000
Variable Selling Expense
0.5
17000
17000
Fixed Selling Expense
6
240000
240000
Cost of Production
1739000
1739000
Sales
1879600
1870000
Profit
140600
131000
The offer should be accepted
The financial advantage
9600
3. U.S. Army offer
Per unit
Accepting Offer
Not accepting Offer (40000)
Direct Material
20
680000
800000
Direct Labor
10
340000
400000
Variable Manufacturing overhead
3
102000
120000
Fixed Manufacturing overhead
9
360000
360000
Variable Selling Expense
0.5
17000
20000
Fixed Selling Expense
6
240000
240000
Cost of Production
1739000
1940000
Sales
1879600
2200000
Profit
140600
260000
The offer should not be accepted
The financial disadvantage
119400
- Polaski Proposal
Offer for 6000 units
Per unit
Accepting Offer
Not accepting Offer
Direct Material
20
800000
680000
Direct Labor
10
400000
340000
Variable Manufacturing overhead
3
120000
102000
Fixed Manufacturing overhead
9
360000
360000
Variable Selling Expense
0.5
20000
17000
Fixed Selling Expense
6
240000
240000
Cost of Equipment
12000
Cost of Production
1952000
1739000
Sales
46.2
2147200
1870000
Profit
195200
131000
The offer should be accepted
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