Question

Cayman Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.98 per package. Annual costs for the production and sale of this quantity are shown in the table.

  

Direct materials	$	256,000
Direct labor		64,000
Overhead		192,000
Selling expenses		80,000
Administrative expenses		53,000
Total costs and expenses	$	645,000

  

A new wholesaler has offered to buy 33,000 packages for $3.30 each. These markers would be marketed under the wholesaler’s name and would not affect Cayman 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 one-and-one-half times the usual labor rate.
•	30% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 70% 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. (Do not round intermediate calculations and round your final answers to the nearest dollar amount. Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response):

  

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.

CAYMAN PRODUCTS COMPARATIVE INCOME STATEMENTS
	(1) Normal Volume	(2) New Business	(3) Combined
(Click to select)EquipmentAccounts payablePurchase discountsSalesAccounts receivable	$	$	$
Costs and expenses
(Click to select)Direct materialsWages expenseIndirect materialsCost of goods soldBudgeted purchases
(Click to select)Direct laborDepreciation expenseSales expenseIndirect laborCash discounts
(Click to select)Rent expenseRepairs expenseOverheadCost of goods soldAccumulated depreciation
(Click to select)Repairs expenseWages expensePurchase discountsCost of goods soldSelling expense
(Click to select)Rent expenseIndirect materialsAdministrative expenseCost of goods soldWages expense
Total costs & expenses
(Click to select)Operating incomeOperating loss	$	$	$

Answer 1