Question

Jones Products manufactures and sells to wholesalers approximately 300,000 packages per year of underwater markers at $3.90 per package. Annual costs for the production and sale of this quantity are shown in the table.

Direct materials	$	384,000
Direct labor		96,000
Overhead		288,000
Selling expenses		120,000
Administrative expenses		80,000
Total costs and expenses	$	968,000

A new wholesaler has offered to buy 50,000 packages for $3.46 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 1½ times the usual labor rate.
•	35% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 65% 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 $3,000 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 Normal New Business Volume 3.90 $ 3.46 Normal Volume $ 1,170,000 Total New Business $ 173,000 Combined $ 1,343,000 Sales | $ Variable costs: Direct materials Direct labor 1.280 1.280 0.320 0.620 384,000 96,000 187,200 64,000 24,000 448,000 120,000 0.480 Variable overhead 0.620 Total variable costs 2.220 2.380 1.080 667,200 502,800 88,000 85,000 568,000 775,000 Contribution margin $ 1.680 $ Fixed costs: Fixed overhead ol Selling expenses Administrative expenses 120,000 80,000 120,000 80,000 Total fixed costs 200.000 200,000 Operating income

Please help me fill the boxes.

Answer 1

Combined Normal Volume (300,000 units) $1,170,000 New business only (50,000 units) $173,000 $1,343,000 $384.000 $96.000 $187.200 $667,200 $64.000 $24,000 $31.200 $119,200 Revenue Variable Costs: Direct materials Direct labor Variable overhead Total Variable Costs: Contribution margin Fixed Costs: Fixed overhead Selling expenses Administrative expenses Total Fixed Costs: Operating Income $448.000 $120,000 $218.400 $786,400 $556,600 $502.800 $53.800 $100.800 $120,000 $80.000 $300.800 SO SO $3.000 $3,000 $50,800 $100.800 $120,000 $83.000 $303.800 $252,800 $202,000 Workings: Overhead Variable overhead ($288.000 * 65%) [$187.200 * (50,000/300.000)] Fixed overhead ($288.000 * 35%) $187.200 $31,200 $100.800