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 82,000 skateboards per year. Annual costs for 82,000 skateboards follow. |
Direct materials | $ | 975,800 |
Direct labor | 697,000 | |
Overhead | 946,000 | |
Selling expenses | 557,000 | |
Administrative expenses | 464,000 | |
Total costs and expenses | $ | 3,639,800 |
A new retail store has offered to buy 13,000 of its skateboards for $61 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. | |
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40 percent of overhead is fixed at any production level from 82,000 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. |
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Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed. |
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• | There will be an additional $2.1 per unit selling expense for this order. | |
• | Administrative expenses would increase by a $860 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.) |
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