Question

In: Accounting

Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity...

Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,600 skateboards per year. Annual costs for 80,600 skateboards follow.

Direct materials

$

943,020

Direct labor

604,500

Overhead

951,000

Selling expenses

551,000

Administrative expenses

475,000

Total costs and expenses

$

3,524,520


A new retail store has offered to buy 14,400 of its skateboards for $64 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.

40 percent of overhead is fixed at any production level from 80,600 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume.

Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed.

There will be an additional $1.60 per unit selling expense for this order.

Administrative expenses would increase by a $910 fixed amount.


Required:
1. 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.

2. Should Calla accept this order?

Solutions

Expert Solution

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!
Calla Company
Workings for fixed cost and variable cost per unit Total Fixed cost @40% Variable cost @60% Variable cost per unit Note
Units                80,600.00
Direct materials (100% variable)              943,020.00              943,020.00                     11.70 This is Direct materials cost/ 80,600 Units.
Direct Labor (100% variable)              604,500.00              604,500.00                       7.50 This is Direct Labor cost/ 80,600 Units.
Overhead              951,000.00              380,400.00              570,600.00                       7.08 This is overhead costs/ 80,600 Units.
Selling Expense              551,000.00              220,400.00              330,600.00                         4.1 This is selling expense / 80,600 Units.
Answer 1
Without special order Special order With special order
Total units                80,600.00                14,400.00                95,000.00
Sales- Normal order (80600*69)           5,561,400.00           5,561,400.00
Sales- Special order (14400*64)              921,600.00              921,600.00
Less: Variable costs
Direct materials              943,020.00              168,480.00           1,111,500.00 This is Total units *11.70.
Direct Labor              604,500.00              108,000.00              712,500.00 This is Total units *7.50.
Overhead              570,600.00              101,943.42              672,543.42 This is Total units *7.08.
Selling Expense              330,600.00                59,065.01              389,665.01 This is Total units *4.10.
Additional Selling Expense                               -                  23,040.00                23,040.00 This is Total units *1.60.
Contribution margin          3,112,680.00              461,071.56          3,573,751.56
Less: Fixed costs
Overhead              380,400.00              380,400.00
Selling Expense              220,400.00              220,400.00
Administrative expenses              475,000.00                      910.00              475,910.00
Net income          2,036,880.00              460,161.56          2,497,041.56
Answer b
Call has positive incremental income of $ 460,161.56 by accepting the order so it should accept the offer.

Related Solutions

Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,600 skateboards per year. Annual costs for 80,600 skateboards follow. Direct materials $ 830,180 Direct labor 572,260 Overhead 941,000 Selling expenses 547,000 Administrative expenses 474,000 Total costs and expenses $ 3,364,440 A new retail store has offered to buy 14,400 of its skateboards for $63 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $54 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $54 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,300 skateboards per year. Annual costs for 80,300 skateboards follow. Direct materials $ 963,600 Direct labor 674,520 Overhead 951,000 Selling expenses 552,000 Administrative expenses 467,000 Total costs and expenses $ 3,608,120 A new retail store has offered to buy 9,700 of its skateboards for $49 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $66 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $66 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,400 skateboards per year. Annual costs for 81,400 skateboards follow. Direct materials $ 919,820 Direct labor 626,780 Overhead 958,000 Selling expenses 546,000 Administrative expenses 475,000 Total costs and expenses $ 3,525,600 A new retail store has offered to buy 13,600 of its skateboards for $61 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $62 per unit. The company currently has the capacity...
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 Company produces skateboards that sell for $64 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $64 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow. Direct materials $ 930,320 Direct labor 729,820 Overhead 949,000 Selling expenses 543,000 Administrative expenses 462,000 Total costs and expenses $ 3,614,140 A new retail store has offered to buy 19,800 of its skateboards for $59 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,500 skateboards per year. Annual costs for 81,500 skateboards follow. Direct materials $ 929,100 Direct labor 741,650 Overhead 943,000 Selling expenses 554,000 Administrative expenses 474,000 Total costs and expenses $ 3,641,750 A new retail store has offered to buy 13,500 of its skateboards for $63 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $50 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,000 skateboards per year. Annual costs for 80,000 skateboards follow. Direct materials $ 800,000 Direct labor 640,000 Overhead 960,000 Selling expenses 560,000 Administrative expenses 480,000 Total costs and expenses $ 3,440,000 A new retail store has offered to buy 10,000 of its skateboards for $45 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $62 per unit. The company currently has the capacity...
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 80,100 skateboards per year. Annual costs for 80,100 skateboards follow. Direct materials $ 921,150 Direct labor 648,810 Overhead 954,000 Selling expenses 548,000 Administrative expenses 474,000 Total costs and expenses $ 3,545,960 A new retail store has offered to buy 9,900 of its skateboards for $57 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow. Direct materials $ 906,260 Direct labor 721,800 Overhead 956,000 Selling expenses 550,000 Administrative expenses 467,000 Total costs and expenses $ 3,601,060 A new retail store has offered to buy 9,800 of its skateboards for $58 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow. Direct materials $ 906,260 Direct labor 721,800 Overhead 956,000 Selling expenses 550,000 Administrative expenses 467,000 Total costs and expenses $ 3,601,060 A new retail store has offered to buy 9,800 of its skateboards for $58 per unit. The store is in a different market from...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT