Question

Cala Company produces skateboards that sell for $53 per unit. The company currently has the capacity to produce 100.000 skateboards per year, but is selling 80,300 skateboards per year. Annual costs for 80,300 skateboards follow 959, 210 730, 730 Direct materials Direct Imbor Overhead Selling expenses Administrative expenses Total costs and expenses 550.000 477, GDE $3,578,940 A new retail store has offered to buy 19,700 of its skateboards for $48 per unit. The store is in a different market from Callas regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following . Direct materials and direct labor are 100% variable. 50 percent of overhead is fixed at any production level from 80,300 units to 100.000 units the remaining Son of annual overhead costs are variable with respect to volume Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are wed - There will be an additional $2.00 per unit selling expense for this order. • Administrative expenses would increase by a $950 fixed amount Required:

Answer 1

CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
	Normal Volume	Additional Volume	Combined Total
Sales	4,255,900	945,600	5,201,500
Costs and expenses:
Direct materials	859,210	210,790	1,070,000
Direct labor	730,730	179,270	910,000
Overhead	953,000	116,900	1,069,900
Selling expenses	559,000	135,398	694,398
Administrative expenses	477,000	950	477,950
Total costs and expenses	3,578,940	643,308	4,222,248
Operating income	676,960	302,292	979,252

Workings:
	Additional volume:
Sales	945,600	=19700*48
Costs and expenses:
Direct materials	210790	=859210/80300*19700
Direct labor	179270	=730730/80300*19700
Overhead	116900	=(953000*50%)/80300*19700
Selling expenses	135398	=(559000*70%)/80300*19700+(19700*2)