Question 8 (of 9) value: 1.00 points Polaski Company manufactures and sells a si

Question

Question 8 (of 9) value: 1.00 points Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below $20 10 720,000 360,000 108,000 252,000 144,000 216,000 Direct materials Direct labor Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost $50 1,800,000 The Rets normally sell for $55 each. Fixed manufacturing overhead is constant at $252,000 per year within the range of 28,000 through 36,000 Rets per year Required: 1. Assume that due to a recession, Polaski Company expects to sell only 28,000 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 28,000 Rets through MacBook A

Explanation / Answer

Answer 1. Statement of Incremental Profit if Special Order is accepted Incremental Revenue Sales Revenue from Special Order - 8000 Nos X $46.20           369,600 Incremental Cost Direct Material - 8000 Nos X $20         (160,000) Direct Labor - 8000 Nos X $10           (80,000) Variable MOH - 8000 Nos X $3           (24,000) Variable Selling Exp. - 8000 Nos X ($4 X 25%)              (8,000) Purchase of Spaecial Machine           (16,000)         (288,000) Incremental Net Income / (Loss)              81,600 Answer 2. Calculation of Sales Price to US Army per Unit Direct Material                20.00 Direct Labor                10.00 Variable MOH                  3.00 Fixed MOH                  7.00 Total Cost                40.00 Add: Mark Up                  2.00 Total Selling price                42.00 Statement of Incremental Profit if Special Order is accepted Incremental Revenue Sales Revenue from Special Order - 8000 Nos X $42           336,000 Incremental Cost Direct Material - 8000 Nos X 20         (160,000) Direct Labor - 8000 Nos X 10           (80,000) Variable MOH - 8000 Nos X 3           (24,000)         (264,000) Incremental Net Income / (Loss)              72,000 Answer 3. Statement of Incremental Profit if Special Order is accepted Incremental Revenue Sales Revenue from Special Order - 8000 Nos X $42           336,000 Savings of Variable Selling Exp. - 8000 Nos X $4              32,000           368,000 Incremental Cost Direct Material - 8000 Nos X 20         (160,000) Direct Labor - 8000 Nos X $10           (80,000) Variable MOH - 8000 Nos X 3           (24,000) Loss of Contribution from regular Sales - 8000 Nos X ($55 - $37)         (144,000)         (408,000) Incremental Net Income / (Loss)           (40,000)

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