Polaski Company manufactures and sells a single product called aRet. Operating at capacity, the company can produce and sell 46,000Rets per year. Costs associated with this level of production andsales are given below:

	Unit				Total
Direct materials	$	20			$	920,000
Direct labor		6				276,000
Variable manufacturingoverhead		3				138,000
Fixed manufacturingoverhead		5				230,000
Variable selling expense		2				92,000
Fixed selling expense		6				276,000
Total cost	$	42			$	1,932,000

The Rets normally sell for $47 each. Fixed manufacturingoverhead is $230,000 per year within the range of 36,000 through46,000 Rets per year.

1. Refer to the original data. Assume again that Polaski Companyexpects to sell only 36,000 Rets through regular channels nextyear. The U.S. Army would like to make a one-time-only purchase of10,000 Rets. The Army would pay a fixed fee of $1.40 per Ret, andit would reimburse Polaski Company for all costs of production(variable and fixed) associated with the units. Because the armywould pick up the Rets with its own trucks, there would be novariable selling expenses associated with this order. What is thefinancial advantage (disadvantage) of accepting the U.S. Army'sspecial order?

2. Assume the same situation as described in (2) above, exceptthat the company expects to sell 46,000 Rets through regularchannels next year. Thus, accepting the U.S. Army’s order wouldrequire giving up regular sales of 10,000 Rets. Given this newinformation, what is the financial advantage (disadvantage) ofaccepting the U.S. Army's special order?