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Bizhelp
Bizhelp, Consultant
Category: General
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Experience:  Bachelors degree
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Polaski Company manufactures and sells a single product called

Resolved Question:

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 34,000 Rets per year. Costs associated with this level of production and sales are given below:


Unit Total
Direct materials $11 $374,000
Direct labor 8 272,000
Variable manufacturing overhead 2 68,000
Fixed manufacturing overhead 8 272,000
Variable selling expense 4 136,000
Fixed selling expense 3 102,000
Total cost $36
$1,224,000


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The Rets normally sell for $68 each. Fixed manufacturing overhead is constant at $272,000 per year within the range of 25,000 through 34,000 Rets per year.

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 3,600 Rets. The Army would pay a fixed fee of $1.61 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?

Net Increase in profits $ ?
Submitted: 5 years ago.
Category: General
Expert:  Bizhelp replied 5 years ago.
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