Question - Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,400 skateboards per year. Annual costs for 80,400 skateboards follow.
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Direct materials
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$908,520
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Direct labor
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578,880
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Overhead
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956,000
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Selling expenses
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553,00
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Administrative expenses
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469,000
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Total costs and expenses
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$3,465,400
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A new retail store has offered to buy 14,600 of its skateboards for $64 per unit. The store is in a different market from Dallas 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.
- 40 percent of overhead is fixed at any production level from 80,400 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume.
- Selling expenses are 80% variable with respect to number of units sold, and the other 20% of selling expenses are fixed.
- There will be an additional $2.00 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.