Question
Calla Company produces skateboards that sell for $56 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling
Calla Company produces skateboards that sell for $56 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,900 skateboards per year. Annual costs for 81,900 skateboards follow. |
Direct materials | $ | 958,230 |
Direct labor | 589,680 | |
Overhead | 956,000 | |
Selling expenses | 558,000 | |
Administrative expenses | 474,000 | |
Total costs and expenses | $ | 3,535,910 |
A new retail store has offered to buy 13,100 of its skateboards for $51 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 81,900 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. | ||
Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed. | ||
There will be an additional $2.4 per unit selling expense for this order. | ||
Administrative expenses would increase by a $990 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. |
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