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Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.86 per package. Annual costs for the production and
Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.86 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 $3.49 each. These markers would be marketed under the wholesaler's name and would not affect Jones Products's 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 1/2 times the usual labor rate. 20% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 80% of the annual overhead costs are variable with volume. Accepting the new business would involve no additional selling expenses. Accepting the new business would increase administrative expenses by a $3,000 fixed amount. . 3. Combined annual operating income from normal business and the new business. Total Per Unit Amounts Normal New Business Volume Normal Volume New Business Combined Sales Variable costs: 0.000 0.000 0 0 0 0 0 0 Fixed costs: 0 0 0 0 0 O O $ 0
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