Question: Jones Products manufactures & sells to wholesalers approximately 500,000 packages per year of underwater markers at 4 dollar per package. Yearly costs for the production & sale of this quantity are shown in the table.
Direct materials $ 640,000
Direct labor 160,000
Overhead 480,000
Selling expenses 200,000
Administrative expenses 133,000
Total costs and expenses $1,613,000
A new wholesaler has offered to purchase 83,000 packages for $3.44 each. These markers would be marketed under the wholesaler's & and would not affect Jones Products' sales through its normal channels. A study of the costs of this additional business reveals the following:
Direct materials costs are 100 percent variables.
Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at one-and-one-half times the usual labor rate.
30 percent of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 70% of the yearly overhead cost is variable with volume.
Accepting new business would involve no additional selling expenses.
Accepting new business would increase administrative expenses by a $4,000 fixed amount.
[A] Yearly operating income without the special order (column 1).
[B] Yearly operating income received from the new business only (column 2).
[C] Combined annual operating income from normal business & new business (column 3).
Jones PRODUCTS
Comparative Income Statements
(1) (2) (3)
Homework
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Direct materials
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$ 640,000
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Direct labor
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160,000
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Overhead
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480,000
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Selling expenses
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200,000
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Administrative expenses
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133,000
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Total costs and expenses
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$1,613,000
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Direct materials
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$ 640,000
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A new wholesaler has offered to buy 83,000 packages for $3.44 each. These markers would be marketed under the wholesaler's name and would not affect Jones Products' sales through its normal channels. A study of the costs of this additional business reveals the following:
Direct materials costs are 100 percent variables.
Every unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at one-and-one-half times the usual labor rate.
30% of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 70 percent of the yearly overhead cost is variable with volume.
Accepting new business would involve no additional selling expenses.
Accepting new business would increase administrative expenses by a $4,000 fixed amount.
[A] Annual operating income without the special order (column 1).
[B] Annual operating income received from the new business only (column 2).
[C] Combined annual operating income from normal business and the new business (column 3).
Jones PRODUCTS
Comparative Income Statements
(1) (2) (3)
Homework
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JONE PRODUCTS
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COMPARATIVE INCOME STATEMENTS
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Normal Volume
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New Business
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Combined
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Sales
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$
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$
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$
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Costs and expenses:
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Direct materials
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Direct labor
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Overhead
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Selling expenses
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Administrative expenses
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Total costs and expenses
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OPERATING INCOME
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$
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$
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$
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