Question

Calla Company produces skateboards that sell for $62 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,900 skateboards per year. Annual costs for 80,900 skateboards follow.

Direct materials	$	970,800
Direct labor		720,010
Overhead		951,000
Selling expenses		548,000
Administrative expenses		470,000
Total costs and expenses	$	3,659,810

A new retail store has offered to buy 9,100 of its skateboards for $57 per unit. The store is in a different market from Calla's regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following:

•		Direct materials and direct labor are 100% variable.
•		30 percent of overhead is fixed at any production level from 80,900 units to 90,000 units; the remaining 70% of annual overhead costs are variable with respect to volume.
•		Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed.
•		There will be an additional $1.8 per unit selling expense for this order.
•		Administrative expenses would increase by a $880 fixed amount.

Required:

Prepare a three-column comparative income statement that reports the following:

a.	Annual income without the special order.
b.	Annual income from the special order.
c.	Combined annual income from normal business and the new business.
(Do not round your intermediate calculation round your cost and expenses values to nearest whole decimal places.)

CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
	Normal Volume	Additional Volume	Combined Total
Costs and expenses:
Total costs and expenses
Operating income

Answer 1

PARTICULARS	INCOME WITHOUT SPECIAL ORDER	INCOME FROM SPECIAL ORDER	COMBINED ANNUAL INCOME
	AMOUNT	AMOUNT	AMOUNT
Units	80900	9100	90000
Sales	50,15,800.00	5,18,700.00	55,34,500.00
Variable expenses
Direct material	9,70,800.00	1,09,200.00	10,80,000.00
Direct labour	7,20,010.00	80,990.00	8,01,000.00
Overhead	6,65,700.00	74,880.96	7,40,580.96
selling expenses	3,83,600.00	43,149.07	4,26,749.07
Additional selling expense	-	16,380.00	16,380.00
Contribution	22,75,690.00	1,94,099.96	24,69,789.96
Fixed expenses
Overhead	2,85,300.00	-	2,85,300.00
selling expenses	1,64,400.00	-	1,64,400.00
administration expenses	4,70,000.00	880.00	4,70,880.00
Net opeating income	13,55,990.00	1,93,219.96	15,49,209.96

NOTES :-
01. Fixed expenses will continue to be fixed untill unless specifically provided some information. Accordingly, selling and overhead expenses will be fixed irrespective of the increase in the sales volume.
However, as per the demand of the question, administration expenses has been increased ( because specifically mentioned in the question )

02. The fixed selling, overhead and administration expenses not to be taken into account while calculating the operating income from the special order,since, fixed expenses will not impact the profit, if the company accepts the order.