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 80,100 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'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 80,100 units to 90,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. • Selling expenses are 80% variable with respect to number of units sold, and the other 20% of selling expenses are fixed. • There will be an additional $2.1 per unit selling expense for this order. • Administrative expenses would increase by a $970 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.)

    

Answer 1

		80100	9900	90000
		Normal volume	New business	Total
	Sales (62/57 pu)	$         4,966,200	564300	$ 5,530,500
	Less: Expenses
(921150÷ 80100)	Direct Material (11.5 pu)	921,150	113850	1,035,000
(648810 ÷ 80100)	Direct Labor (8.10 pu)	648,810	80190	729,000
(60% x 954000 ÷ 80100)	Overhead (7.14607 pu)	954,000	70746	1,024,746
(80% x 548000 ÷ 80100)	Selling Expenses (5.47316 pu)+2.1	548,000	74974	622,974
(970 fixed)	Administration expenses	474,000	970	474,970
	Total cost and expenses	$         3,545,960	340730	3,886,690
	Net Income	$         1,420,240	223570	1,643,810