Jones Products manufactures and sells to wholesalers approximately 400,000 packa
ID: 2493729 • Letter: J
Question
Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $3.90 per package. Annual costs for the production and sale of this quantity are shown in the table. Direct materials $ 512,000 Direct labor 128,000 Overhead 384,000 Selling expenses 160,000 Administrative expenses 107,000 Total costs and expenses $ 1,291,000 A new wholesaler has offered to buy 67,000 packages for $3.38 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 one-and-one-half times the usual labor rate. • 30% of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 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 $2,000 fixed amount. Required: Complete the three-column comparative income statement that shows the following (Do not round intermediate calculations and round per unit cost answers to 2 decimal places.): 1. Annual operating income without the special order. 2. Annual operating income received from the new business only. 3. Combined annual operating income from normal business and the new business
Explanation / Answer
Note:
Option 1 = Annual operating income without special order, Option 2 = Annual operating income received from the new business only. Option 3 = Combined annual operating income from normal business and the new business.
Three-column comperative income statement Particulars Option 1 ($) (a) Option 2 ($) (b) Option 3 ($) (c = a + b) Sales revenue (400,000 packages * $3.90) (67,000 * $3.38) 1,560,000 226,460 1,786,460 Less: Cost of goods sold: Direct mateails : (100% variable- $512,000/400,000 = $1.28*67,000) 512,000 85,760 597,760 Direct labor : ($128,000/400,000 = $0.32 + 50%*$0.32 = $0.48*67,000) 128,000 32,160 160,160 Overhead : ($384,000 - $384,000*30/100 = ) 384,000 384,000 Variable ($384,000 - $115,200 = $268,800/400,000 = $0.672*67,000) 45,024 45,024 Fixed ($384,000*30/100) 115,200 115,200 Gross margin 536,000 -51,684 484,316 Less: selling and administration expenses: 0 Selling 160,000 - 160,000 Administration expenses : ($107,000 + $2,000) 107,000 109,000 216,000 Net income 269,000 -160,684 108,316Related Questions
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