Question

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

Answer 1