Question

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 80,100 skateboards per year. Annual costs for 80,100 skateboards follow.

Direct materials	$	841,050
Direct labor		680,850
Overhead		948,000
Selling expenses		542,000
Administrative expenses		462,000
Total costs and expenses	$	3,473,900

A new retail store has offered to buy 14,900 of its skateboards for $56 per unit. The store is in a different market from Calla's 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.
• 40 percent of overhead is fixed at any production level from 80,100 units to 95,000 units; the remaining 60% 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 fixed.
• There will be an additional $2.80 per unit selling expense for this order.
• Administrative expenses would increase by a $990 fixed amount.

Required:
1. Prepare a three-column comparative income statement that reports the following:

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.

2. Should Calla accept this order?

Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a three-column comparative income statement that reports the following: 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. (Do not round your intermediate calculations. Round your cost and expenses to nearest whole number.) Show less CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Combined Total Additional Volume $ 834,400 $ 4,886,100 $ 5,720,500 Sales Costs and expenses: Direct materials Direct labor Overhead Selling expenses Administrative expenses 156,450 126,650 841,050 680,850 948,000 542,000 462,000 997,500 807,500 948,000 542,000 462,990 990 Total costs and expenses Operating income 3,473,900 1,412,200 284,090 550,310 3,757,990 1,962,510 $ $ $ Required 1 Required 2 >

Answer 1

1
CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
	Normal Volume	Additional Volume	Combined Total
Sales	4,886,100	834,400	5,720,500
Costs and expenses:
Direct materials	841,050	156,450	997,500
Direct labor	680,850	126,650	807,500
Overhead	948,000	105,807	1,053,807
Selling expenses	542,000	112,295	654,295
Administrative expenses	462,000	990	462,990
Total costs and expenses	3,473,900	502,192	3,976,092
Operating income	1,412,200	332,208	1,744,408
2
Yes accept the order
Workings:
Additional volume:
Sales = 14900*56 = 834400
Costs and expenses:
Direct materials = 841050/80100*14900=156450
Direct labor = 680850/80100*14900 = 126650
Overhead = (948000*60%)/80100*14900 = 81236
Selling expenses:
Variable = (542000*70%)/80100*14900= 70575
Additional = 14900*2.80= 41720
Selling expenses = 70575+41720 = 112295