Texas Controls Inc. began operations in 2019 to manufacture a single product. There are no ending work-in-process inventories. Relevant data for the year follow:

OPERATING DATA FOR 2019
Quantities:
Beginning inventories, finished goods		0
Units produced during the year		6,300
Units sold during the year		5,600
Costs:
Direct materials ($30 per unit)	$	189,000
Direct labor ($28 per unit)		176,400
Variable factory overhead ($16 per unit)		100,800
Fixed factory overhead		62,000
Variable selling and administrative expenses ($15 per unit)		84,000
Fixed selling and administrative expenses		81,000
Selling price for each unit		124

Required:

1. Prepare an income statement for 2019 using direct costing.
2. Assume that the company has an opportunity to sell 700 units of the product in a foreign country for $98 per unit. No fixed or variable selling and administrative expenses would be incurred in connection with these units except shipping costs of $14 per unit and miscellaneous administrative expenses of $2 per unit. The company has idle capacity, and the order would not affect present markets. Would it be profitable for the company to accept the order?

Analyze: What percentage of the foreign sales order would be realized as marginal income?

a.

Prepare an income statement for 2019, using direct costing.

TEXAS CONTROLS INC.
Income Statement (Direct Costing)
Year Ended December 31, 2019
Cost of goods sold
Cost of goods manufactured
Total cost of goods manufactured		$0
Cost of Goods Sold
			$0
			$0
Fixed costs and expenses
Total fixed costs and expenses			0
			$0

b.

Assume that the company has an opportunity to sell 700 units of the product in a foreign country for $98 per unit. No fixed or variable selling and administrative expenses would be incurred in connection with these units except shipping costs of $14 per unit and miscellaneous administrative expenses of $2 per unit. The company has idle capacity, and the order would not affect present markets. Compute marginal income or loss on order.

TEXAS CONTROLS INC.
Computations
Foreign Sales Order
Sales
Variable manufacturing costs
Materials
Labor
Overhead
Total variable manufacturing costs		0
Manufacturing margin		$0
Variable shipping and administrative costs
Marginal income on order		$0

c.

Would it be profitable for the company to accept the order?

	Would it be profitable for the company to accept the order?

__________

d.

What percentage of the foreign sales order would be realized as marginal income? (Round your percentage answer to 1 decimal place. i.e., 0.123 should be considered as 12.3%.)

Percentage of marginal income on foreign sales order

%

________