Jones Products manufactures and sells to wholesalers approximately 500,000 packages per year of underwater markers at $3.95 per package. Annual costs for the production and sale of this quantity are shown in the table.

Problem 25-1A Analyzing income effects of additional business LO P7 Jones Products manufactures and sells to wholesalers approximately 500,000 packages per year of underwater markers at $3.95 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 $ 640,000 160,000 480,000 200,000 133,000 $1,613,000 A new wholesaler has offered to buy 83,000 packages for $3.38 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 450,000 to 600,000 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. 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 3.95 $ 3.38 Total Normal New Business Volume $ 1,975,000 $ 280,540 Combined $ 2,255,540 Sales Variable costs: Direct materials Direct labor Fixed overhead 1.280 0.320 0.770 1.280 0.480 0.770 640,000 160,000 106,240 39,840 746,240 199,840 2.370 2.530 800,000 1,175,000 146,080 134,460 946,080 1,309,460 Total variable costs Fixed costs