Question 81 1. Polaski Company manufactures and sells a single product called a
ID: 2444615 • 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 the same situation as that described in (2) above, except that the company expects to sell 30,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular slaes of 5,000 Rets. If the Army’s order is accepted, by how much will profits be increased or decreased from what they would be if the 5,000 Rets were sold through regular channels?
Explanation / Answer
profit 5 + fixed selling 6- recovered 1.8=9.2 per unit
5000*9.2=46000 net decrease
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