Following is the income statement of Pelle Company, a manufacturer of men's blue jeans: (Click the icon to view the income statement.) Pelle had manufactured 0.8 million pairs of jeans, which had been sold to various clothing wholesalers and department stores. At the start of 20X0, the president, Cinthia Suarez, died unexpectedly. Her son, Chuck, became the new president. Chuck had worked for 15 years in the marketing phases of the business. He knew very little about accounting and manufacturing, which were his mother's strengths. Chuck has several questions, including inquiries regarding the pricing of special orders. Read the requirements Requirement 1. To prepare better answers, you decide to recast the income statement in contribution form. Variable manufacturing cost was $28 million. Variable selling and administrative expenses, which were mostly sales commissions, shipping expenses, and advertising allowances paid to customers based on units sold, were $7.8 million. Prepare the revised income statement. (Enter per unit amounts to the nearest cent.) Total 48,000,000 $ Per Unit 60.00 Sales Less Variable expenses: Manufacturing Selling and administrative 28,000,000 35.00 7,800,000 9.75 35,800,000 44.75 12.200.000 15.25 Total variable expenses Contribution margin Less Fixed expenses: Manufacturing 4,800,000 6.00 Selling and administrative 1,400,000 1.75 Total fixed expenses 6,200,000 7.75 6,000,000 $ 7.50 Operating income Requirement 2. Chuck asks, "I can't understand financial statements until I know the meaning of various terms. In scanning my mother's assorted notes, I found the following pertaining to both total and unit costs: full manufacturing cost, variable cost, full cost, fully allocated cost, gross margin, and contribution margin. Using our data for 20x0, please give me a list of these costs, their total amounts, and their per-unit amounts." (Assume that Pelle Company defines fully allocated cost as full manufacturing costs plus selling and administrative costs. Enter per unit amounts to the nearest cent.) Total Cost Per Unit $ 41.00 $ 32,800,000 $ 35,800,000 $ 42,000,000 $ 44.75 $ 52.50 Full manufacturing cost Variable cost Full cost Fully allocated cost Gross margin Contribution margin 42,000,000 $ 52.50 $ 19.00 15,200,000 $ 12,200,000 $ $ 15.25 Requirement 3. He also says, "Near the end of 20X0, I brought in a special order from New Navy for 20,000 jeans at $50 each. I said I'd accept a flat $25,000 sales commission instead of the usual 4% of selling price, but my mother refused the order. She usually upheld a relatively rigid pricing policy, saying that it was bad business to accept orders that did not at least generate full manufacturing cost plus 25% of full manufacturing cost. That policy bothered me. We had idle capacity. The way I figured, our manufacturing costs would go up by 20,000 x $41 = $820,000, but our selling and administrative expenses would go up by only $25,000. That would mean additional operating income of 20,000 x (550 - $41) minus $25,000, or $180,000 minus 525,000, or $155,000. That's too much money to give up just to maintain a general pricing policy. Was my analysis of the impact on operating income correct? If not, please show me the correct additional operating income. Begin by showing the effect of the special order on the company's operating income. (Complete all answer boxes. Enter per unit amounts to the nearest cent. Assume the flat sales commission under the special order is a fixed expense.) Effect of Special Order 20,000 units Total Per Unit Sales 1,000,000 50 Less variable expenses: Manufacturing Selling and administrative Total variable expenses Contribution margin Less fixed expenses Manufacturing Selling and administrative Total fixed expenses Operating income Enter any number in the edit fields and then click Check Answer. X - Data Table Pelle Company Income Statement for the Year Ended December 31, 20X0 Total Per Unit Sales $ 48,000,000 $ 60.00 Less: Cost of goods sold 32,800,000 41.00 Gross margin 15,200,000 $ 19.00 9,200,000 11.50 Less selling and administrative expenses $ 6,000,000 $ 7.50 Operating income Print Done