Calla Company produces skateboards that sell for $51 per unit. The company curre

Question

Calla Company produces skateboards that sell for $51 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow. Direct materials $ 874,180 Direct labor 681,700 Overhead 945,000 Selling expenses 548,000 Administrative expenses 462,000 Total costs and expenses $ 3,510,880 A new retail store has offered to buy 14,800 of its skateboards for $46 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 80,200 units to 95,000 units; the remaining 60% 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 $1.2 per unit selling expense for this order. • Administrative expenses would increase by a $840 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. (Do not round your intermediate calculation round your cost and expenses values to nearest whole decimal places.)

Explanation / Answer

CALLA COMPANY COMPARITIVE INCOME STATEMENT (a) without the special order sales 80200 x 51 4090200 less: direct material 874180 direct labour 681700 overhead 945000 2500880 1589320 less: selling exp 548000 less: administration exp 462000 profit 579320 (b) annual income from the special order sales 14800 x 46 680800 less; direct material 874180/80200*14800 161320 direct labour 681700/80200*14800 125800 overhead 945000*40% fixed 378000 945000*60% variable 104633 567000/80200*14800 -88953 less: selling exp 548000*40% fixed 219200 548000*60% variable 60676 $ 1.2 additional 17760 less: admin exp 462000/80200*14800 85257 additional amount 840 loss if accepted offer -472686 c) combined annual income sales 4771000 less: direct matarial 1035500 direct labour 807500 overhead 1427633 1500367 less: selling exp 845636 less: admin exp 548097 combined profit 106634

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