value: 6.66 points Problem 10-22A Accept or Reject a Special Order [LO10-4] Pola
ID: 2551665 • Letter: V
Question
value: 6.66 points Problem 10-22A Accept or Reject a Special Order [LO10-4] 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: Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense $15 $ 450,000 240,000 90,000 270,000 120,000 180.000 Total cost 45$ 1,350,000 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 yearExplanation / Answer
(1). Net profit Increased by $65000
Explanation;
Incremental revenue (5000 * $42)
$210000
Less:
Direct materials costs (5000 * $15)
($75000)
Direct labor costs (5000 * $8)
($40000)
Variable manufacturing costs (5000 * $3)
($15000)
Variable selling costs (5000 * $1)
($5000)
Cost of machine
($10000)
Net increase in net profits
$65000
(2). Net profit Increased by $54000
Explanation;
Incremental revenue (5000 * $1.80)
$9000
Add:
Recovery of fixed manufacturing costs (5000 * $9)
$45000
Net increase in net profits
$54000
(3). Net profit decreased by $46000
Explanation;
Incremental revenue (5000 * $1.80)
$9000
Add:
Recovery of fixed manufacturing costs (5000 * $9)
$45000
Total additional revenue if order is accepted
$54000
Less:
Lost contribution margin (5000 * $20)
($100000)
Net decrease in net profits
($46000)
Incremental revenue (5000 * $42)
$210000
Less:
Direct materials costs (5000 * $15)
($75000)
Direct labor costs (5000 * $8)
($40000)
Variable manufacturing costs (5000 * $3)
($15000)
Variable selling costs (5000 * $1)
($5000)
Cost of machine
($10000)
Net increase in net profits
$65000
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