Calia Company produces skateboards that sell for $53 per unit. Calla Company pro

Question

Calia Company produces skateboards that sell for $53 per unit.

Calla Company produces skateboards that sell for $53 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,500 skateboards per year. Annual costs for 81,500 skateboards follow Direct materials Direct labor Overhead Selling expenses Administrative expenses $823,150 733,500 953,000 557,000 472,000 Total costs and expenses $3,538,650 A new retail store has offered to buy 13,500 of its skateboards for $48 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 . Direct materials and direct labor are 100% variable. 50 percent of overhead is fixed at any production level from 81,500 units to 95,000 units; the remaining 50% 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 $1.6 per unit selling expense for this order Administrative expenses would increase by a $810 fixed amount. reveals the following Required 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 calculation round your cost and expenses values to nearest whole decimal places.)

Explanation / Answer

Comparative Income Statements :-

Working Note 1 :-

Variable Overhead = 50% * $953000 = $476500

Cost per unit = $476500 / 81500 = $5.85

New Business Variable Overhead Cost = 13500 * $5.85 = $78975

Working Note 2 :-

Variable Selling Exp.= 557000 * 70% = $389900

Cost Per unit = $389900 / 81500 = $4.78

Total Selling Expenses = $4.78 + $1.6 = $6.38

New Busniess Selling Expense = $6.38 * 13500 = $86130

Particulars Normal Volume Additional Volume Combined Total Sales 4319500 648000 4967500 Costs and Expenses :- Direct Materials 823150 136350 959500 Direct Labor 733500 121500 855000 Overhead 953000 78975 (Working Note 1) 1031975 Administrative Exp. 472000 810 472810 Selling Exp. 557000 86130 (Working Note 2) 643130 Total Costs and Exp. 3538650 423765 3962415 Operating Income 780850 224235 1005085

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