Question

Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $6 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 576,000 144,000 320,000 150,000 100,000 $1.290.000 A new wholesaler has offered to buy 50,000 packages for $5.20 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 19 times the usual labor rate. • Twenty-five percent of the normal annual overhead costs are fixed at any production level from 350,000 to 500.000 units. The remaining 75% of the annual overhead cost is variable 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. (Do not round Intermediate calculations and round per unit cost answers to 2 decimal places.): 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 Volume Business Normal Volume Total New Business Combined Sales Variable costs: 0.000000 ol ol Ol lololoOOOLLOOL

Answer 1

Jones Products Requirement 1 Per Unit Amounts Total Normal Volume New Business Normal Volume New Business Combined 5.2 2400000 260000 2660000 1.44 0.36 0.6 Sales Variable costs: Direct materials Direct labor Variable overhead Total variable costs Contribution margin Fixed costs: Fixed overhead Selling expenses Administrative expenses 1.44 0.54 0.6 2.58 2.62 576000 144000 240000 960000 1440000 72000 27000 30000 129000 131000 648000 171000 270000 1089000 1571000 2.4 3.6 80000 150000 100000 80000 150000 105000 5000 Total fixed costs Operating income 330000 1110000 5000 126000 335000 1236000 576000 400000 Supporting computations Normal direct materials cost Units of output Cost per unit New business volume New business direct materials cost 1.44 50000 72000 Normal direct labor cost Units of output Cost per unit Overtime per unit (50%) New business direct labor cost per unit 144000 400000 0.36 0.18 0.54 New business volume New business direct labor cost 50000 27000 320000 80000 240000 Total overhead Fixed overhead (25%) Variable overhead Units of output Cost per unit New business volume New business variable overhead cost 400000 0.6 50000 30000