chain’s name on the 9,000 units. This machine would cost $18,000. 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.
Refer to the original data. Assume again that Polaski Company expects to sell only 23,000 Rets through regular
channels next year. The U.S. Army would like to make a one-time-only purchase of 9,000 Rets. The Army
would pay a fixed fee of $2.00 per Ret, and it would reimburse Polaski Company for all costs of production
(variable and fixed) associated 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. If Polaski Company accepts the order, by
how much will profits increase or decrease for the year?
Assume the same situation as that described in (2) above, except that the company expects to sell 32,000 Rets
through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular
sales of 9,000 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what
they would be if the 9,000 Rets were sold through regular channels?
Because the fixed costs will not change as a result of the order, they are not relevant to the decision. The cost of the
new machine is relevant, and this cost will have to be recovered by the current order because there is no assurance
of future business from the retail chain.