10 Check my work 5 Problem 12-22 Special Order Decisions [LO12-4] Polaskl Compan

Question

10 Check my work 5 Problem 12-22 Special Order Decisions [LO12-4] Polaskl Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are glven below 10 points Unit s 28 18 Total Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost $ 80e,888 488,888 128,8e8 368,888 88,888 248,888 $ 2,ee,8ee eBook $ 58 Print The Rets normally sell for $55 each. Fixed manufacturing overhead Is $360,000 per year within the range of 34,000 through 40,000 Rets per year. References Requlred 1. Assume that due to a recession, Polaskl Company expects to sell only 34,000 Rets through regular channels next year. A large retall chain has offered to purchase 6,000 Rets if Polaskl 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 retall chain's name on the 6,000 units. This machine would cost $12,000. Polaskl Company has no assurance that the retall chaln will purchase additional units In the future. What is the financial advantage (disadvantage) of accepting the speclal order? 2. Refer to the original data. Assume agaln that Polaskl Company expects to sell only 34,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would pay a fixed fee of $1.60 per Ret, and it would relmburse Polaskl Company for all costs of production (variable and fixed) associated with the unlts. Because the army would pick up the Rets with Its own trucks, there would be no varlable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's speclal order? 3. Assume the same sltuation as described In (2) above, except that the company expects to sell 40,000 Rets through regular channels next year. Thus, accepting the U.S. Army's order would require giving up regular sales of 6,000 Rets. Given this new Information, what is the financlal advantage (disadvantage) of accepting the U.S. Army's special order?

Explanation / Answer

Offer for 6000 units

Per unit

Accepting Offer

Not accepting Offer

Direct Material

20

800000

680000

Direct Labor

10

400000

340000

Variable Manufacturing overhead

3

120000

102000

Fixed Manufacturing overhead

9

360000

360000

Variable Selling Expense

0.5

20000

17000

Fixed Selling Expense

6

240000

240000

Cost of Equipment

12000

Cost of Production

1952000

1739000

Sales

46.2

2147200

1870000

Profit

195200

131000

The offer should be accepted

2. U.S. Army Proposal

Offer for 6000 units

Per unit

Accepting Offer

Not accepting Offer

Direct Material

20

680000

680000

Direct Labor

10

340000

340000

Variable Manufacturing overhead

3

102000

102000

Fixed Manufacturing overhead

9

360000

360000

Variable Selling Expense

0.5

17000

17000

Fixed Selling Expense

6

240000

240000

Cost of Production

1739000

1739000

Sales

1879600

1870000

Profit

140600

131000

The offer should be accepted

The financial advantage

9600

3. U.S. Army offer

Per unit

Accepting Offer

Not accepting Offer (40000)

Direct Material

20

680000

800000

Direct Labor

10

340000

400000

Variable Manufacturing overhead

3

102000

120000

Fixed Manufacturing overhead

9

360000

360000

Variable Selling Expense

0.5

17000

20000

Fixed Selling Expense

6

240000

240000

Cost of Production

1739000

1940000

Sales

1879600

2200000

Profit

140600

260000

The offer should not be accepted

The financial disadvantage

119400

1. Polaski Proposal

Offer for 6000 units

Per unit

Accepting Offer

Not accepting Offer

Direct Material

20

800000

680000

Direct Labor

10

400000

340000

Variable Manufacturing overhead

3

120000

102000

Fixed Manufacturing overhead

9

360000

360000

Variable Selling Expense

0.5

20000

17000

Fixed Selling Expense

6

240000

240000

Cost of Equipment

12000

Cost of Production

1952000

1739000

Sales

46.2

2147200

1870000

Profit

195200

131000

The offer should be accepted

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.