9.

Calla Company produces skateboards that sell for $52 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 81,300 skateboards per year. Annual costs for 81,300 skateboards follow.

Direct materials	$	967,470
Direct labor		642,270
Overhead		942,000
Selling expenses		557,000
Administrative expenses		471,000
Total costs and expenses	$	3,579,740

A new retail store has offered to buy 18,700 of its skateboards for $47 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.
• 30 percent of overhead is fixed at any production level from 81,300 units to 100,000 units; the remaining 70% 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 $2.80 per unit selling expense for this order.
• Administrative expenses would increase by a $960 fixed amount.

Required: 1. 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.

CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
	Normal Volume	Additional Volume	Combined Total
Costs and expenses:
Total costs and expenses
Operating income

2. Should Calla accept this order?

10. Cobe Company has already manufactured 20,000 units of Product A at a cost of $25 per unit. The 20,000 units can be sold at this stage for $450,000. Alternatively, the units can be further processed at a $270,000 total additional cost and be converted into 5,600 units of Product B and 11,900 units of Product C. Per unit selling price for Product B is $103 and for Product C is $53. 1. Prepare an analysis that shows whether the 20,000 units of Product A should be processed further or not?

	Sell as is	Process Further
Sales
Relevant costs:
Total relevant costs
Income (loss)
Incremental net income (or loss) if processed further
The company should