Cant find the Normal Volume and NewBusiness for Direct Materials, Direct Labor a
ID: 2437648 • Letter: C
Question
Cant find the Normal Volume and NewBusiness for Direct Materials, Direct Labor and Variable overhead, Contribution Margin also
Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.88 per package. Annual costs for the production and sale of this quantity are shown in the table.
A new wholesaler has offered to buy 33,000 packages for $3.31 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.
30% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 70% 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 $4,000 fixed amount.
Required:
Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals)
1. Annual operating income without the special order.
2. Annual operating income received from the new business only.
3. Combined annual operating income from normal business and the new business.
Explanation / Answer
Annual operating income without the special order
Particulars
Amount ($)
Amount ($)
Sales (200000 x 3.88)
776,000.00
Less: Total costs and expenses
645,000.00
Annual operating income without the special order
131,000.00
Annual operating income received from new business only
Particulars
Amount ($)
Amount ($)
Sales (33000 x 3.31)
109,230.00
Less: Expenses
Direct materials ( Note 1)
42,240.00
Direct labour (Note 2)
15,840.00
Overhead (Note 3)
22,176.00
Selling expenses
-
Administrative expenses
4,000.00
Total costs and expenses
84,256.00
Annual operating income received from new business only
24,974.00
Combined annual operating income from normal and new business
Particulars
Amount ($)
Amount ($)
Annual operating income without the special order
131,000.00
Add: Annual operating income received from new business only
24,974.00
Combined annual operating income from normal and new business
155,974.00
Particulars
Amount ($)
Note 1
Direct materials for 200000 units
256,000.00
Direct materials for 33000 (256000 x 33000/200000)
42,240.00
Note 2:
Direct labour
64,000.00
Units
200,000.00
Per unit costs (64000/200000)
0.32
For 33000 units:
Each unit (0.32 x 1.5)
0.48
For 33000 units (33000 x 0.48)
15,840.00
Note 3:
Overhead
192,000.00
Fixed portion (192000 x 30%)
57,600.00
Variable portion (192000 x 70%)
134,400.00
Overhead for 33000 (134400 x 33000/200000)
22,176.00
Annual operating income without the special order
Particulars
Amount ($)
Amount ($)
Sales (200000 x 3.88)
776,000.00
Less: Total costs and expenses
645,000.00
Annual operating income without the special order
131,000.00
Annual operating income received from new business only
Particulars
Amount ($)
Amount ($)
Sales (33000 x 3.31)
109,230.00
Less: Expenses
Direct materials ( Note 1)
42,240.00
Direct labour (Note 2)
15,840.00
Overhead (Note 3)
22,176.00
Selling expenses
-
Administrative expenses
4,000.00
Total costs and expenses
84,256.00
Annual operating income received from new business only
24,974.00
Combined annual operating income from normal and new business
Particulars
Amount ($)
Amount ($)
Annual operating income without the special order
131,000.00
Add: Annual operating income received from new business only
24,974.00
Combined annual operating income from normal and new business
155,974.00
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