Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 80,500 skateboards per year. Annual costs for 80,500 skateboards follow.
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|
|
| Direct materials |
$ |
885,500 |
| Direct labor |
|
644,000 |
| Overhead |
|
944,000 |
| Selling expenses |
|
558,000 |
| Administrative expenses |
|
479,000 |
|
|
|
| Total costs and expenses |
$ |
3,510,500 |
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|
|
|
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A new retail store has offered to buy 19,500 of its skateboards for $58 per unit. The store is in a different market from Calla's regular customers and it would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following:
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| • |
|
Direct materials and direct labor are 100% variable. |
| • |
|
40 percent of overhead is fixed at any production level from 80,500 units to 100,000 units; the remaining 60% of annual overhead costs are variable with respect to volume.
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| • |
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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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| • |
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There will be an additional $1.9 per unit selling expense for this order. |
| • |
|
Administrative expenses would increase by a $840 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. |