ezto.mheducation com Accounting Web Slice Gallery 99 Names of A. .teric Online AC live NelsonBrain- My Home login.aro Windows H-streaming Personnaliser les liens Google BMO - Bank of...ine Banking Apple Bing Aplia Yahoo Chapter 9 Quiz for Marks (15%) Chegg Study Guided Solutions and Study Help Chegg.com tion Com Web Slice G Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 28,000 Rets per year. Costs associated with this level of production and sales are as $17.50 S 490,000 10.50 294,000 Direct labour 5.50 154,000 Fixed manufacturing overhead 11.50 322,000 112,000 6.00 168,000 Fixed selling expense Total cost $55.00 $1,540,000 The Rets normally sell for $60 each. Fixed manufacturing overhead is constant at $322,000 per year within the range of 18,000 through 2B,000 Rets per year 1. Assume that, due to a recession, Polaski Company expects to sell only 18,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 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 10,000 units. This machine would cost $20,000. 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. 2. Refer to the original data. Assume again that Polaski Company expects to sell only 18,000 Rets through regular channels next year The Canadian Forces would like to make a one-time-only purchase of 10,000 Rets. The Forces would pay a fixed fee of $1.70 per Ret, and in addition it would reimburse Polaski Company for all costs of production (iable and fixed) associated with the units. Since the Forces would pick up the Rets with its own trucks, there would be no variable selling expenses of any type associated with this order. If Polaski Company accepts this order, by how much will profits be increased or decreased for the year?
1)Fixed manufacturing overhead cost and fixed selling cost is irrelevant as it will be incurred whether offer is acceped or not(Remain constant within relevant range of output) .so only variable cost is relevant while making decision for special offer.
Special offer selling price :60(1-.16 discount]= 50.4
Net Benefit = 159000- 20000 machine cost = $ 139000
Profit will increase by $ 139,000
2)Fixed manufacturing overhead cost and fixed selling cost is irrelevant as it will be incurred whether offer is acceped or not(Remain constant within relevant range of output) .so only variable cost is relevant while making decision for special offer. however there will be no variable selling expense so it is also irrelevant.
The Forces will reimburse fixed production overhead however it will remain constant within relevant range so it will be an incremental benefit .
Total benefit per ret = 1.70 offer price+11.50 fixed production overhead
= $ 13.20
Total profit : 13.2*10000 = $ 132,000
3)contribution from regular sales per ret : price- all variable cost
= [60- (17.50+10.5+5.5+4)]
= 60 -37.50
= $ 22.5 per ret
Total benefit per ret = 1.70 offer price+11.50 fixed production overhead
= $ 13.20
profit /(loss) per ret = 13.20 benefit - 22.5 loss of contribution on regular sales due to acceptance of special offer
= -9.30 per ret
Total loss : -9.30* 10000 = $ -93000
Profit will decrease by $ 93000
| selling price | 50.4 |
| less:direct material | (17.50) |
| Direct labor | (10.50) |
| variable manufacturing overhead | (5.50) |
| variable selling cost [4(1-.75)] | (1) |
| Benefit per ret | 15.90 |
| Total benefit before special machine cost [15.90*10000] | 159000 |
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