ezto.mheducation.com chapter 10 homework Chegg l Guided Solutions and y Help l 2
ID: 2530319 • Letter: E
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ezto.mheducation.com chapter 10 homework Chegg l Guided Solutions and y Help l 20.00 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 $20 10 Total Diredt materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 920,000 460,000 138,000 414,000 92,000 276,000 Total cost S50 $2,300,000 The Rets normally sell for S55 each. Fixed manufacturing overhead is constant at $414,000 per year within the range of 39,000 through 46,000 Rets per year Roquired: 1. Assume that due to a recession, Polaski Company expects to sell only 39,000 Rets through regular channels next year. A large retil chain has offered to purchase 7,000 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 7,000 units. This machine would cost $14,000. 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 Pclaski Company expects to sell only 39,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.60 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 varlable selling expenses associated with this order. If Polask Company accepts the order, by how much will profits increase or decrease for the year?Explanation / Answer
Solution:-
Direct Material
20
Direct Labour
10
V manufct O/H
3
Variable selling exp(2*25%)
0.50
Fixed selling exp
6
Toatl VC per unit
39.5
Sales Value (55*84%) * 7000 = 323400
(-)Variable Cost (39.5*7000)=276500
(-)Special Machine=14000
Net Profit/Loss=32900
Net Profit INCREASE by 32900
(2)
Variable cost per unit if 7000 units sold to Army:-
Direct Material
20
Direct Labour
10
V manufct O/H
3
Fixed selling exp
6
Toatl VC per unit
39
Sales Value 55*7000 = 385000
(-)Fixed Fee (1.6*7000)=11200
(-) Variable cost(39*7000)=273000
Net Profit/Loss=100800
Net Profit INCREASE by 100800
(3)If expect to sell 46000 units through regular channel , impact on profit if order of Army Accepted:-
Saving in Variable selling O/H (7000*2) = 14000
(-)Fixed Fee (7000*1.6)=11200
Net Profit/Loss=2800
Net Profit INCREASE by 2800
Direct Material
20
Direct Labour
10
V manufct O/H
3
Variable selling exp(2*25%)
0.50
Fixed selling exp
6
Toatl VC per unit
39.5
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