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Problem 12-22 Special Order Decisions [LO12-4]

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 48,000 Rets per year. Costs associated with this level of production and sales are given below:

	Unit				Total
Direct materials	$	25			$	1,200,000
Direct labor		8				384,000
Variable manufacturing overhead		3				144,000
Fixed manufacturing overhead		7				336,000
Variable selling expense		4				192,000
Fixed selling expense		6				288,000
Total cost	$	53			$	2,544,000

The Rets normally sell for $58 each. Fixed manufacturing overhead is $336,000 per year within the range of 39,000 through 48,000 Rets per year.

Required:

1. Assume that due to a recession, Polaski Company expects to sell only 39,000 Rets through regular channels next year. A large retail chain has offered to purchase 9,000 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 chains 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. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.)

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