Question

Calla Company produces skateboards that sells for $61 per unit

Calla Company produces skateboards that sell for $61 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,300 skateboards per year. Annual costs for 80,300 skateboards follow Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 931, 480 714,670 952.000 543,000 463,000 $3,604,150 543.000 A new retail store has offered to buy 14,700 of its skateboards for $56 per unit. The store is in a different market from Calla's te customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the followin • Direct materials and direct labor are 100% variable. • 30 percent of overhead is fixed at any production level from 80,300 units to 95,000 units, the remaining 70% of annual ove costs are variable with respect to volume. . Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed. • There will be an additional $2.80 per unit selling expense for this order. • Administrative expenses would increase by a $950 fixed amount Required: 1. Prepare a three-column comparative income statement that reports the following: order. 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.

Answer 1

CALLA COMPANY
COMPARATIVE INCOME STATEMENT
	Normal	Additional	Total
Sales	$ 4,898,300	$823,200	$5,721,500
Cost and Expense:
Direct Material	$931,480	$170,520	$1,102,000
Direct Labor	$714,670	$130,830	$845,500
Overhead	$952,000	$121,994	$1,073,994
Selling Expense	$543,000	$106,294	$649,294
Administrative Expense	$463,000	$950	$463,950
Total Cost and Expense	$3,604,150	$530,588	$4,134,738
Operating Income	$1,294,150	$292,612	$1,586,762

Explanation:

1) Normal Sales:80,300 skate board × $ 61 p.u. = $ 4,898,300

2) Additional Sales: 14,700 × $56 = $ 823,200

3) Direct Material:

= ( $ 931,480 ÷ 80,300) = $ 11.6 p.u × 14700= $ 170,520

4) Direct Labor:

= ( $ 714,670 ÷ 80300) = $ 8.9 p.u × 14,700 = $ 130,830

5) Overhead :

= $ 952,000 × 70%

= $666,400 ÷ 80,300

= $ 8.298879 per unit × 14,700

=$121,994

6) Selling Expense:

= $ 593,000 × 60 %= $ 355,800

= $ 355,800 ÷ 80,300

= $ 4.43088 p.u × 14,700

= $ 65134 + ( 14,700 × $ 2.80)

= $ 65,134 + $ 41,160

= 106,294

(2) Yes, they should accept this offer.