Calla Company produces skateboards that sell for $55 per unit. The company curre

Question

Calla Company produces skateboards that sell for $55 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 82,000 skateboards per year. Annual costs for 82,000 skateboards follow. Direct materials $ 934,800 Direct labor 582,200 Overhead 940,000 Selling expenses 557,000 Administrative expenses 465,000 Total costs and expenses $ 3,479,000 A new retail store has offered to buy 18,000 of its skateboards for $50 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 82,000 units to 100,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. • Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed. • There will be an additional $1.7 per unit selling expense for this order. • Administrative expenses would increase by a $890 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.) CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales $4,510,000 $900,000 $5,410,000 Costs and expenses: Direct materials 934,800 934,800 Direct labor 582,200 582,200 Overhead 940,000 940,000 Selling expenses 557,000 557,000 Administrative expenses 465,000 465,000 Total costs and expenses 3,479,000 0 3,479,000 Operating income $1,031,000 $900,000 $1,931,000

Explanation / Answer

Calla Company Comparative Income Statements Normal Business New Business Combined Sales (In units)                 82,000            18,000               100,000 SP per unit                         55                    50 Sales (In $)           4,510,000         900,000            5,410,000 Less: Variable Expenses Direct Materials              934,800         205,200            1,140,000 Direct Labor              582,200         127,800               710,000 Overhead              564,000         123,805               687,805 Selling Expenses              389,900            85,588               475,488 Additional Selling Exp. ($1.70 X 18000 Units)                          -              30,600                  30,600 Total Variable Expenses           2,470,900         572,993            3,043,893 Contribution           2,039,100         327,007            2,366,107 Fixed Expenses Overhead              376,000                     -                 376,000 Selling Expenses              167,100                     -                 167,100 Administrative exp.              465,000                  890               465,890 Total Fixed Expenses           1,008,100                  890            1,008,990 Net Operating income           1,031,000         326,117            1,357,117

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