Calla Company produces skateboards that sell for $69 per unit. The company curre

Question

Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,600 skateboards per year. Annual costs for 80,600 skateboards follow. A new retail store has offered to buy 14,400 of its skateboards for $64 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. 30 percent of overhead is fixed at any production level from 80,600 units to 95,000 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 $2.9 per unit selling expense for this order. Administrative expenses would increase by a $860 fixed amount. Required: Prepare a three-column comparative income statement that reports the following: Annual income without the special order. Annual income from the special order. 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 statement

Normal volume

(80600 units)

Additional volume

(14400 units)

Combined total

(95000 units)

5561400

(@69)

921600

(@64)

6483000

*(814060/80600×14400=145440)

**(588380/80600×14400=105120)

***[((945000×.70)/80600)×14400=118184]

****[{(557000×.60)/80600}×14400+(14400×2.9)=101468]

Normal volume

(80600 units)

Additional volume

(14400 units)

Combined total

(95000 units)

Revenue

5561400

(@69)

921600

(@64)

6483000

Cost & expense: Direct material 814060 145440* 959500 Direct labour 588380 105120** 693500 Overhead 945000 118184*** 1063184 Selling expense 557000 101468**** 658468 Administration expense 468000 860 468860 Total cost and expense 3372440 471072 3843512 Operating expense 2188960 450528 2639488

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