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Problem 12-22 Accept or Reject a Special Order [L012-4] 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 assoclated with this level of production and sales are glven below: Unit Total Direct materials $ 25 s1000,000 Direct labor Varlable manufacturing overhead Flxed manufacturing overhead Varlable selling expense Fixed selling expense 8 320,000 120,000 7 280,000 160,000 6 240,000 3 4 Total cost $53 s2120,000 The Rets normally sell for $58 each. Fixed manufacturing overhead is constant at $280,000 per year within the range of 35,000 through 40,000 Rets per year Requlred 1. Assume that due to a recession, Polaskl Company expects to sell only 35,000 Rets through regular channels next year. A large retall chain has offered to purchase 5,000 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 The Rets normally sell for $58 each. Fixed manufacturing overhead is constant at $280,000 per year within the range of 35,000 through 40,000 Rets per year Requlrec 1. Assume that due to a recession, Polaskl Company expects to sell only 35,000 Rets through regular channels next year. A large retall chaln has offered to purchase 5,000 Rets lf 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 retall chaln's name on the 5,000 units. Thls machine would cost $10,000 Polaskl Company has no assurance that the retall chaln will purchase additional units In the future. Determine the Impact on profits next year If thls speclal order Is accepted. profit by 2 Refer to the original data. Assume again that Polaski Company expects to sell only 35,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of $1.20 per Ret, and It would relmburse Polaskl Company for all costs of production (varlable and fixed) assoclated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order.f Polaskl Company accepts the order, by how much will profits Increase or decrease for the year? Net profit by 3. Assume the same situation as that 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 5,000 Rets. If the Army's order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channes? Net profit oy