Question

Problem 23-1A Analysis of income effects of additional business LO A1 Jones Products manufactures and sells to wholesalers approximeately 500,000 peckages per year of underwater markers at $3.92 per package. Annual costs for the production and sale of this quantity are shown in the table. Direct materials Direct labor 640,000 160,000 480,000 200,000 133,000 Overhead Selling expenses Administrative expenses Total costs and expenses $1,613,000 A new wholesaler has offered to buy 83,000 packages for $3.30 each. These markers would be marketed under the wholesaler's name and would not affect Jones Products' 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 times the usual labor rate. 25 % of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 75 % of the annual overhead cost is veariable with volume Accepting the new business would involve no additional selling expenses Accepting the new business would increase administrative expenses by a $5,000 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. Per Unit Amounts Total Normal Volume Normal Volume New Business New Business Combined Sales Variable costs 0.000 0.000 0 0 0 0 0 0 Flxed costs: 0 0 0 0 0

Answer 1

Per unit amounts Normal Volume New Business 500000 @ $ 3.92 83000 @ $ 3.30 Total Normal Volume New business combined $ 19,60,000.00 $ 2,73,900.00 $ 22,33,900.00 Sales Variable costs: Direct Material Direct Labor Overhead Fixed Overhead costs: Gross profit Operating Expenses : Selling expenses Administrative expenses Net Income 500000 500000 500000 500000 83000 $ 83000 $ 83000 $ 83000 $ 6,40,000.00 $ 1,60,000.00 $ 3,60,000.00 $ 1,20,000.00 $ 6,80,000.00 $ 1,06,240.00 $ 26,560.00 $ 59,760.00 $ 19,920.00 61,420.00 $ 7,46,240.00 1,86,560.00 4,19,760.00 1,39,920.00 7,41,420.00 00 $ $ 2,00,000.00 1,33,000.00 3,47,000.00 $ $ 5,000.00 $ 56,420.00 $ 2,00,000.00 1,38,000.00 4,03,420.00