Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 81,200 skateboards per year. Annual costs for 81,200 skateboards follow.

image text in transcribed

A new retail store has offered to buy 18,800 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.
  • 40 percent of overhead is fixed at any production level from 81,200 units to 100,000 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 $970 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. image text in transcribed

image text in transcribed

Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 885,080 617, 120 950,000 550,000 474,000 $3,476,200 CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Costs and expenses: Total costs and expenses Operating income Should Calla accept this order

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Budgeting Auditing And Evaluation Functions And Integration In Seven Governments

Authors: Andrew Gray

1st Edition

0765807246, 9780765807243

More Books

Students also viewed these Accounting questions