Question

# Calla Company produces skateboards that sell for \$51 per unit. The company currently has the capacity...

Calla Company produces skateboards that sell for \$51 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow.

 Direct materials \$ 914,280 Direct labor 641,600 Overhead 956,000 Selling expenses 550,000 Administrative expenses 460,000 Total costs and expenses \$ 3,521,880

A new retail store has offered to buy 14,800 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.

50 percent of overhead is fixed at any production level from 80,200 units to 95,000 units; the remaining 50% of annual overhead costs are variable with respect to volume.

Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed.

There will be an additional \$2.20 per unit selling expense for this order.

Administrative expenses would increase by a \$930 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 calculations. Round your cost and expenses to nearest whole number.)

 CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales \$4,090,200 \$680,800 \$4,771,000 Costs and expenses: Direct materials 914,280 914,280 Direct labor 641,600 641,600 Total costs and expenses 1,555,880 0 1,555,880 Operating income \$2,534,320 \$680,800 \$3,215,120

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