Question

Jones Products manufactures and sells to wholesalers approximately 300,000 packages per year of underwater markers at $3.97 per package. Annual costs for the production and sale of this quantity are shown in the table.

Direct materials	$	384,000
Direct labor		96,000
Overhead		288,000
Selling expenses		120,000
Administrative expenses		80,000
Total costs and expenses	$	968,000

A new wholesaler has offered to buy 50,000 packages for $3.44 each. These markers would be marketed under the wholesaler’s name and would not affect Jones Products’ sales through its normal channels. A study of the costs of this additional business reveals the following:

• Direct materials costs are 100% variable.
• Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1½ times the usual labor rate.
• 35% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 65% of the annual overhead cost is variable with volume.
• Accepting the new business would involve no additional selling expenses.
• Accepting the new business would increase administrative expenses by a $4,000 fixed amount.

Required:
Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals)

1. Annual operating income without the special order.
2. Annual operating income received from the new business only.
3. Combined annual operating income from normal business and the new business.

Type or paste question here

per unit amount

total

sales	normal value	new business	normal value	new business	combined
variable costs
VariableOverhead
(DL, DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales) ??
(DL, DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales) ??
(DL, DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales) ??
(contri Marg, gross prof, Oper income, total fixed costs, total var costs) ??
(contri marg, gross prof, Oper income, total fixed costs, total var costs) ??
x	x	x	x	x	x
Fixed costs
Fixed overhead
(DL,DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales)??
(DL,DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales)??
(DL,DM, Var Overhead, Fixed Overhead, selling expenses, admin expenses, sales)??
Total fixed costs
(contri Marg, gross prof, Oper income, total fixed costs, total var costs) ??

Answer 1

			Per unit amounts		Total
			Normal	New	Normal	New	Combined
			Volume	Business	Volume	Business
Sales			3.97	3.44	1191000	172000	1363000
Variable costs:
Direct Materials			1.28	1.28	384000	64000	448000
Direct Labor			0.32	0.48	96000	24000	120000
Variable Overhead			0.62	0.62	187200	31200	218400
Total Variable costs			2.22	2.38	667200	119200	786400
Contribution margin			1.75	1.06	523800	52800	576600
Fixed costs:
Fixed overhead					100800	0	100800
Administrative expenses					80,000	4,000	84,000
Selling expenses					120,000	0	120,000
Total fixed costs					300800	4000	304800
Operating income					223000	48800	271800