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Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $3.89 per package. Annual costs for the production and
Jones Products manufactures and sells to wholesalers approximately 400,000 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 $ 512,000 128,000 384,000 160,000 107,000 $1,291,000 A new wholesaler has offered to buy 67,000 packages for $3.35 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. 35% of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. The remaining 65% 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. 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. 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 Business Volume 3.35 Total Normal New Business Combined Volume 1,556,000 $ 224,450 $ 1,780,450 Sales $ 3.89 $ $ Variable costs: Direct materials 1.280 1.280 597,760 512,000 128,000 85,760 32,160 Direct labor 0.320 0.480 160,160 Variable overhead Total variable costs 1.600 1.760 640,000 117,920 106,530 757,920 1,022,530 Contribution margin 916,000 0 Fixed costs: Fixed overhead Administrative expenses Selling expenses 107,000 160,000 107,000 160,000 0 267,000 0 267,000 Total fixed costs Operating income $ 0
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