Jones Products manufactures and sells to wholesalers underwater markers at $3.88
ID: 2401551 • Letter: J
Question
Jones Products manufactures and sells to wholesalers underwater markers at $3.88 per package. Annual costs for the production and sale of this quantity are shown in the table. approximately 200,000 packages per year of Direct materials Direct labor Overhead Selling expenses Administrative expenses $ 256,000 64,000 192,000 80,000 53,000 Total costs and expenses s 645000 A new wholesaler has offered to buy 33,000 packages for $3.37 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: costs of th 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 1% times the usual labor rate. . 20% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 80% 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 Volume New BusinessNormal New Business Co Sales Variable costs: 2 decimal places required MacBookExplanation / Answer
Solution:
Per Unit Amount
Total
Normal Volume
New Business
Normal Volume
New Business
Combined
Sales
$3.880
$3.370
$776,000
$111,210
$887,210
Variable Costs:
Direct materials
$1.280
($256,000 / 200,000 package)
$1.280
$256,000
$42,240
$298,240
Direct labor
$0.320
(64,000 / 200,000)
$0.480
(0.32*150%)
$64,000
$15,840
$79,840
Variable Overheads
$0.768
(192,000*80%/200,000)
$0.768
$153,600
$25,344
$178,944
Selling Expenses
$0.400
(80,000 / 200,000)
$0.000
$80,000
$0
$80,000
Total Variable Costs
$553,600
$83,424
$637,024
Contribution Margin
$222,400
$27,786
$250,186
Fixed Costs:
Fixed Overhead Costs
$38,400
(192,000*20%)
$38,400
Administrative Expenses
$53,000
$3,000
$56,000
Total Fixed Costs
$91,400
$3,000
$94,400
Operating Profit
$131,000
$24,786
$155,786
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Per Unit Amount
Total
Normal Volume
New Business
Normal Volume
New Business
Combined
Sales
$3.880
$3.370
$776,000
$111,210
$887,210
Variable Costs:
Direct materials
$1.280
($256,000 / 200,000 package)
$1.280
$256,000
$42,240
$298,240
Direct labor
$0.320
(64,000 / 200,000)
$0.480
(0.32*150%)
$64,000
$15,840
$79,840
Variable Overheads
$0.768
(192,000*80%/200,000)
$0.768
$153,600
$25,344
$178,944
Selling Expenses
$0.400
(80,000 / 200,000)
$0.000
$80,000
$0
$80,000
Total Variable Costs
$553,600
$83,424
$637,024
Contribution Margin
$222,400
$27,786
$250,186
Fixed Costs:
Fixed Overhead Costs
$38,400
(192,000*20%)
$38,400
Administrative Expenses
$53,000
$3,000
$56,000
Total Fixed Costs
$91,400
$3,000
$94,400
Operating Profit
$131,000
$24,786
$155,786
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