Calla Company produces skateboards that sell for $53 per unit. The company curre

Question

Calla Company produces skateboards that sell for $53 per unit. The company currently has the capacity to produce 95,000 skateboards per year, b skateboards follow ut is selling 81,000 skateboards p er year. Annual costs for 81,000 Direct materials Direct labor Overhead Selling expenses Administrative expenses $ 826,200 680,400 948,000 549,000 465,000 Total costs and expenses $3,468,600 A new retail store has offered to buy 14,000 of its skateboards for $48 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 50 percent of overhead is fixed at any production level from 81,000 units to 95,000 units; the remaining 50% of annual overhead costs are variable with respect to volume expenses are fixed Administrative expenses would increase by a $980 fixed amount. ·Selling expenses are 80% variable with respect to number of units sold, and the other 20% of selling There will be an additional $1.9 per unit selling expense for this order.

Explanation / Answer

Normal Additional Combined Volume Volume Total Sales in units 81000 14000 95000 Sale Price per unit 53 48 Sale Value $ 4293000 672000 4965000 Costs and Expenses Direct Materials 826200 142800 969000 10.2 $ per unit variable Direct Labor 680400 117600 798000 8.4 $ per unit variable Overheads Fixed 474000 474000 50% Fixed irrespective of change in volume Variable 474000 81925.92593 555925.9 5.851852 $ per unit variable Selling Expenses Fixed 109800 109800 20% Fixed Variable 439200 101111.1111 540311.1 5.422222 $ per unit variable Administrative Expenses 465000 980 465980 Total Costs and Expenses 3468600 444417.037 3913017 Net Operating Income 824400 227582.963 1051983

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