Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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.

Direct materials

$

908,520

Direct labor

578,880

Overhead

956,000

Selling expenses

553,000

Administrative expenses

469,000

Total costs and expenses

$

3,465,400

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 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 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. (Do not round your intermediate calculations. Round your cost and expenses to nearest whole number.)

image text in transcribed

CALLA COMPANY COMPARATIVE INCOME STATEMENTS Additional Combined Normal Volume Volume Sales 5,547,600$ 934,400 6,482,000 Costs and expenses: Direct materials Direct labor Overhead 164,980 105,120 164,991 105,127 Selling expenses Total costs and expenses Operating income 18 1 $ 5,547,582 $ 664,300 $ 6,211,882 270,100 270,118

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

Accounting And Social Theory An Introduction

Authors: Lisa Jack

1st Edition

1138100714, 9781138100718

More Books

Students also viewed these Accounting questions