Question

Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $3.84 per package. Annual costs for the production and sale of this quantity are shown in the table.

Direct materials	$	512,000
Direct labor		128,000
Overhead		384,000
Selling expenses		160,000
Administrative expenses		107,000
Total costs and expenses	$	1,291,000

A new wholesaler has offered to buy 67,000 packages for $3.43 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 350,000 to 500,000 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 $2,000 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.

	Per Unit Amounts Total Normal Volume New Business Normal Volume New Business Combined Sales $3.84 $3.43 Variable costs: Direct materials Direct labor Variable overhead Total variable costs 0.000 0.000 0 0 0 Contribution margin 0 0 0 Fixed costs: Fixed overhead 0 Administrative expenses 0 Selling expenses 0 0 Total fixed costs 0 0 0 Operating income $0

Answer 1

ans
Per Unit Amounts		Total
	Normal Volume	New Business	Normal Volume	New Business	Combined
			400000	67000
Sales	$3.84	$3.43	$1,536,000.0	$229,810.00	$1,765,810
Variable costs:
Direct materials	1.280	1.280	$512,000.0	$85,760.00	$597,760
	(512000/400000)
Direct labor	0.320	0.48	$128,000.0	$32,160.00	$160,160
	(128000/400000)
Variable overhead	0.624	0.624	$249,600.0	$41,808.00	$291,408
	(384000*65%)/400000
Total variable costs	2.224	2.384	$889,600.0	$159,728.00	$1,049,328
Contribution margin	$1.62	$1.05	$646,400.0	$70,082.00	$716,482
Fixed costs:
Fixed overhead
Administrative expenses	0.268	0.030	$107,000.0	$2,000.00	$109,000
	107000/400000	2000/67000
Selling expenses	0.4	0	$160,000.0	$0.00	$160,000
	160000/400000
Total fixed costs	0.668	0.030	$267,000.0	$11,940	$278,940
Operating income	$0.95	$1.02	$379,400.0	$406,460	$785,860

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