Calla Company produces skateboards that sell for $66 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 82,000 skateboards per year. Annual costs for 82,000 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 852,800 656,000 941,000 547,000 479,000 $3,475,800 A new retail store has offered to buy 13,000 of its skateboards for $61 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 82,000 units to 95,000 units; the remaining 70% 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 $2.90 per unit selling expense for this order. Administrative expenses would increase by a $910 fixed amount. 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. (Do not round your intermediate calculations. Round your cost and expenses to nearest whole number.) CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales Costs and expenses: Direct materials Direct labor Overhead 852,800 656,000 941,000 547,000 479,000 852,800 656,000 941,000 547,000 479,000 Selling expenses Administrative expenses Total costs and expenses 3,475,800 0 3,475,800 Operating income Haver Company currently produces component RX5 for its sole product. The current cost per unit to manufacture the required 54,000 units of RX5 follows. Direct materials Direct labor Overhead Total costs per unit $ 4.00 8.00 9.00 21.00 Direct materials and direct labor are 100% variable. Overhead is 70% fixed. An outside supplier has offered to supply the 54,000 units of RX5 for $19.00 per unit. Required: 1. Calculate the incremental costs of making and buying component RX5. Total incremental costs of: Making the units Buying the units Total costs Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Harold Manufacturing produces denim clothing. This year, it produced 5,140 denim jackets at a manufacturing cost of $42.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets. 1. Jackets can be sold to a secondhand clothing shop for $8.00 each. 2. Jackets can be disassembled at a cost of $32,800 and sold to a recycler for $11.00 each. 3. Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,140 jackets into only 3,060 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,500, but the jackets can then be sold for their regular price of $45.00 each. Required: 1. Calculate the incremental income. Alternative 1 Sell to a second- hand shop Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and sell at regular prices Incremental revenue Incremental costs Incremental income
