10/31/17, 3(43 PM
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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
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expense
Fixed selling expense
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 year.
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 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 by 75%. However, Polaski Company would have to purchase a
special machine to engrave the retail chain’s name on the 5,000 units. This machine would cost
$10,000. Polaski Company has no assurance that the retail chain will purchase additional units 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 25,000 Rets through
regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 Rets.
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