Question

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 42,000 Rets per year. Costs associated with this level of production and sales are as follows Unit Total Direct materials Direct labour Variable manufacturing $21.00 $ 882,000 588,000 14.00 9.00 378,000 overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 15.00 4.00 6.00 630,000 168,000 252,000 Total cost $69.00 $2,898,000 The Rets normally sell for $74 each. Fixed manufacturing overhead is constant at $630,000 per year within the range of 25,000 through 42,000 Rets per year. Required 1. Assume that, due to a recession, Polaski Company expects to sell only 25,000 Rets through regular channels next year. A large retail chain has offered to purchase 17,000 Rets if Polaski is willing to accept a 16% discount off the regular 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 17,000 units. This machine would cost $34,000. Polaski Company has no assurance that the retail chain will purchase additional units any time in the future. Determine the impact on profits next year if this special order is accepted price. There would be no sales commissions on this order: thus, variable in profits

Answer 1