Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.89 per package. Annual costs for the production and sale of this quantity are shown in the table. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $256, 000 64,000 192,000 80,000 53,000 $645,000 A new wholesaler has offered to buy 33,000 packages for $3.38 each. These markers would be marketed under the wholesaler's name and would not affect Jones Products' sales through its normal channels. A study of the costs of this additional business reveals the following: Direct materials costs are 100% variable. Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 19 times the usual labor rate. 30% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 70% of the annual overhead cost is variable with volume. Accepting the new business would involve no additional selling expenses. Accepting the new business would increase administrative expenses by a $4,000 fixed amount. Prey 1 of 2 Next > Direct materials costs are 100% variable. Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1/2 times the usual labor rate. 30% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 70% of the annual overhead cost is variable with volume. Accepting the new business would involve no additional selling expenses. Accepting the new business would increase administrative expenses by a $4,000 fixed amount. Required: Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals) 1. Annual operating income without the special order. 2. Annual operating income received from the new business only. 3. Combined annual operating income from normal business and the new business. Per Unit Amounts Normal New Volume Business $ 3.81 $ 3.41 Total Normal New Volume Business $ 762,000 $ 112,530 Combined $ 87,453 Sales Variable costs: Direct materials Direct labor Variable overhead 1.280 0.320 0.768 1.280 0.480 0.768 X 256,000 64,000 153,600 42,240 15,840 25,344 798,240 79,840 178,944 % Total variable costs 2.368 2.528 473,600 8 3,424 29,106 557,024 (469,571) Fixed costs: 88 88 38,400 Fixed overhead Administrative expenses Selling expenses 0 4,000 57.000 80,000 80, 0000 0 Total fixed costs Operating income .400 133,000 $ 4,000 4,000 $ 175,400 137,000
