Question 81 1. Polaski Company manufactures and sells a single product called a
ID: 2444614 • Letter: Q
Question
Question 81
1. 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
Direct materials……………………….. $15 $450,000
Direct labor 8 240,000
Variable manufacturing overhead……. 3 90,000
Fixed manufacturing overhead………. 9 270,000
Variable selling expense…………….. 4 120,000
Fixed selling expense……………….. 6 180,000
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Total cost………………………….. $45 $1,350,000
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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.
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 in addition it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the army would pick up the Rets with its own trucks, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts the order, by how much will profits be increased or decreased for the year.
Explanation / Answer
fixed manufacturing overhead 9+ received 1.8= 10.8
10.8*5000=54000 net increase in profits
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