Question

Calla Company produces skateboards that sell for $56 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow. Direct materials $ 981,600 Direct labor 613,500 Overhead 954,000 Selling expenses 558,000 Administrative expenses 477,000 Total costs and expenses $ 3,584,100 A new retail store has offered to buy 13,200 of its skateboards for $51 per unit. The store is in a different market from Calla's regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following: 1. Direct materials and direct labor are 100% variable. 2. 50 percent of overhead is fixed at any production level from 81,800 units to 95,000 units; the remaining 50% of annual overhead costs are variable with respect to volume. 3. Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed. 4. There will be an additional $1.60 per unit selling expense for this order. 5. Administrative expenses would increase by a $890 fixed amount.Required: Prepare a three-column comparative income statement that reports the following: a. Annual income without the special order. b. Annual income from the special order. c. Combined annual income from normal business and the new business.(Do not round your intermediate calculation round your cost and expenses values to nearest whole decimal places.)

Answer 1

Calla Company

Three-column comparative Income Statement:

Normal Special order Total

Sales Revenue $4,580,800 $673,200 $5,254,000

Cost of sales:

Direct materials $ 981,600 $158,400 $1,140,000

Direct labor 613,500 99,000 712,500

Overhead 954,000 76,973 1,030,973

Selling expenses 558,000 84,151 642,151

Administrative expenses 477,000 890 477,890

Total costs and expenses $ 3,584,100 $419,414 $4,003,514

Net income $ 996,700 $ 253,786 $1,250,486

Step-by-step explanation:

a) Data and Calculations:

Annual production capacity = 95,000 units

Actual annual production and sales = 81,800 units

Special order (units) = 13,200

Selling price (normal) = $56 per unit

Special order selling price = $51 per unit

Direct materials $ 981,600

Direct labor 613,500

Overhead 954,000

Selling expenses 558,000

Administrative expenses 477,000

Total costs and expenses $ 3,584,100

Three-column comparative Income Statement:

Normal Special order Total

Sales volume 81,800 13,200 95,000

Selling price $56 $51

Sales Revenue $4,580,800 $673,200 $5,254,000

Cost of sales:

Direct materials $ 981,600 $158,400 $1,140,000

Direct labor 613,500 99,000 712,500

Overhead 954,000 76,973 1,030,973

Selling expenses 558,000 84,151 642,151

Administrative expenses 477,000 890 477,890

Total costs and expenses $ 3,584,100 $419,414 $4,003,514

Net income $ 996,700 $ 253,786 $1,250,486

1. Direct materials cost per unit = $981,600/81,800 = $12

2. Direct labor cost per unit = $613,500/81,800 = $7.50

3. Variable Overhead cost = $954,000/2 = $477,000

Variable overhead cost per unit = $477,000/81,800 = $5.83129

4. Variable selling expenses = 70% of $558,000 = $390,600

Variable selling expenses per unit = $390,600/81,800 = $4.77506

Additional selling expense per unit = $6.37506 ($4.77506 + $1.60)

Selling expense for special order = 84,151($6.37506 * 13,200)

5. Administrative expenses increased by $890