Question

Calla Company produces skateboards that sell for $51 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow. Direct materials $ 842,540 Direct labor 597,140 Overhead 949,000 Selling expenses 559,000 Administrative expenses 473,000 Total costs and expenses $ 3,420,680 A new retail store has offered to buy 8,200 of its skateboards for $46 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.

*30 percent of overhead is fixed at any production level from 81,800 units to 90,000 units; the remaining 70% 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 $2.60 per unit selling expense for this order.

*Administrative expenses would increase by a $860 fixed amount.

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 calculations. Round your cost and expenses to nearest whole number.)

Answer 1

Calla Company
Income Statement
	Income Without Special Order	Income from Special Order	Combined Income
	81800 Units	8200 Units	90000 Units
Sales Revenue	$    4,171,800.00	$ 377,200.00	$       4,549,000.00
Less: Costs
Material Cost	$        842,540.00	$    84,460.00	$          927,000.00
Direct Labor	$        597,140.00	$    59,860.00	$          657,000.00
Variable Overheads	$        664,300.00	$    66,592.42	$          730,892.42
Fixed Overheads	$        284,700.00	$                    -	$          284,700.00
Variable Selling Expenses	$       335,400.00	$    33,622.00	$          369,022.00
Additional Selling Expenses		$    21,320.00	$             21,320.00
Fixed Selling Expenses	$        223,600.00		$          223,600.00
Administrative Expenses	$        473,000.00	$          860.00	$          473,860.00
Total Costs	$    3,420,680.00	$ 266,714.43	$       3,687,394.43
Net Income	$        751,120.00	$ 110,485.57	$          861,605.57

Working notes
Sale price of special order is $46 so total revenue is $377200 (46*8200).
Additional Administrative expenses will be added to cost of selling 8200 Units.
Fixed selling cost and variable cost are separated. Similar action is done with Overheads.
Additional Selling expenses are additional cost for selling order quantity of 8200 units. It will be added to cost of selling 8200 unit and not 81800 units.