Calla Company produces skateboards that sell for $66 per unit. The company curre

Question

Calla Company produces skateboards that sell for $66 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,700 skateboards per year. Annual costs for 81,700 skateboards follow.

A new retail store has offered to buy 8,300 of its skateboards for $61 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 81,700 units to 90,000 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 $1.90 per unit selling expense for this order.

Administrative expenses would increase by a $990 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 calculations. Round your cost and expenses to nearest whole number.)

Direct materials $ 988,570 Direct labor 718,960 Overhead 942,000 Selling expenses 546,000 Administrative expenses 478,000 Total costs and expenses $ 3,673,530

Explanation / Answer

CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales 5392200 506300 5898500 Costs and expenses: Direct materials 9,88,570 1,00,430 1089000 Direct labor 7,18,960 73,040 792000 Overhead 9,42,000 57,419 9,99,419 Selling expenses 5,46,000 54,598 6,00,598 Administrative expenses 4,78,000 990 478990 Total costs and expenses 36,73,530 286477 3960007 Operating income 17,18,670 219823 1938493

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