Calla Company produces skateboards that sell for $50 per unit. The company curre
ID: 2431820 • Letter: C
Question
Calla Company produces skateboards that sell for $50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,000 skateboards per year. Annual costs for 80,000 skateboards follow.
A new retail store has offered to buy 10,000 of its skateboards for $45 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.
Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the remaining 70% of annual overhead costs are variable with respect to volume.
Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed.
There will be an additional $2 per unit selling expense for this order.
Administrative expenses would increase by a $1,000 fixed amount.
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.
Explanation / Answer
Answers
TOTAL
Variable part
Variable cost per unit, based on 80,000 units
Fixed part
[A]
[B = A x % given in question for variable portion]
[C = B / 80,000 units]
[D = A – B]
Direct Material
$ 800,000.00
$ 800,000.00
$ 10.00
$ -
Direct Labor
$ 640,000.00
$ 640,000.00
$ 8.00
$ -
Overheads
$ 960,000.00
$ 672,000.00
$ 8.40
$ 288,000.00
Selling expenses
$ 560,000.00
$ 336,000.00
$ 4.20
$ 224,000.00
Administrative expense
$ 480,000.00
$ -
$ -
$ 480,000.00
TOTAL
$ 3,440,000.00
$ 30.60
$ 992,000.00
Annual Income without Special Order
Annual Income from Special Order
Combined Annual Income
Units
80,000
10,000
90,000
Total Sales Revenue
$ 4,000,000.00
$ 450,000.00
$ 4,450,000.00
Variable costs:
Direct Material
$ 800,000.00
$ 100,000.00
$ 900,000.00
Direct Labor
$ 640,000.00
$ 80,000.00
$ 720,000.00
Overheads
$ 672,000.00
$ 84,000.00
$ 756,000.00
Selling expenses
$ 336,000.00
$ 62,000.00
$ 398,000.00
Total Variable cost
$ 2,448,000.00
$ 326,000.00
$ 2,774,000.00
Contribution margin
$ 1,552,000.00
$ 124,000.00
$ 1,676,000.00
Fixed Costs:
Overheads
$ 288,000.00
$ -
$ 288,000.00
Selling expenses
$ 224,000.00
$ -
$ 224,000.00
Administrative expense
$ 480,000.00
$ 1,000.00
$ 481,000.00
Total Fixed cost
$ 992,000.00
$ 1,000.00
$ 993,000.00
Net Income
$ 560,000.00
$ 123,000.00
$ 683,000.00
Annual Income without Special Order
Annual Income from Special Order
Units
80000
10000
Total Sales Revenue
=80000*50
=10000*45
Variable costs:
Direct Material
=80000*10
=10000*10
Direct Labor
=80000*8
=10000*8
Overheads
=80000*8.4
=10000*8.4
Selling expenses
=80000*4.2
=(10000*(4.2+2))
Total Variable cost
Total Variable cost
Total Variable cost
Contribution margin
Sales – Variable cost
Sales – Variable cost
Fixed Costs:
Overheads
$ 288,000.00
0
Selling expenses
$ 224,000.00
0
Administrative expense
$ 480,000.00
$ 1000
Total Fixed cost
Total Fixed cost
Total Fixed cost
Net Income
Contribution margin – Fixed cost
Contribution margin – Fixed cost
TOTAL
Variable part
Variable cost per unit, based on 80,000 units
Fixed part
[A]
[B = A x % given in question for variable portion]
[C = B / 80,000 units]
[D = A – B]
Direct Material
$ 800,000.00
$ 800,000.00
$ 10.00
$ -
Direct Labor
$ 640,000.00
$ 640,000.00
$ 8.00
$ -
Overheads
$ 960,000.00
$ 672,000.00
$ 8.40
$ 288,000.00
Selling expenses
$ 560,000.00
$ 336,000.00
$ 4.20
$ 224,000.00
Administrative expense
$ 480,000.00
$ -
$ -
$ 480,000.00
TOTAL
$ 3,440,000.00
$ 30.60
$ 992,000.00
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