Calla Company produces skateboards that sell for $69 per unit. The company curre
ID: 2600554 • Letter: C
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 80,400 skateboards per year. Annual costs for 80,400 skateboards follow.
Direct materials
$
908,520
Direct labor
578,880
Overhead
956,000
Selling expenses
553,000
Administrative expenses
469,000
Total costs and expenses
$
3,465,400
A new retail store has offered to buy 14,600 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.
• 40 percent of overhead is fixed at any production level from 80,400 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume.
• Selling expenses are 80% variable with respect to number of units sold, and the other 20% of selling expenses are fixed.
• There will be an additional $2.00 per unit selling expense for this order.
• Administrative expenses would increase by a $930 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
$
908,520
Direct labor
578,880
Overhead
956,000
Selling expenses
553,000
Administrative expenses
469,000
Total costs and expenses
$
3,465,400
CALLA COMPANY COMPARATIVE INCOME STATEMENTS Additional Combined Normal Volume Volume Sales 5,547,600$ 934,400 6,482,000 Costs and expenses: Direct materials Direct labor Overhead 164,980 105,120 164,991 105,127 Selling expenses Total costs and expenses Operating income 18 1 $ 5,547,582 $ 664,300 $ 6,211,882 270,100 270,118Explanation / Answer
CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales 5547600 934400 6482000 Costs and expenses: Direct materials 9,08,520 1,64,980 1073500 Direct labor 5,78,880 1,05,120 684000 Overhead 9,56,000 1,04,161 10,60,161 Selling expenses 5,53,000 1,09,536 6,62,536 Administrative expenses 4,69,000 930 469930 Total costs and expenses 34,65,400 4,84,727 3950127 Operating income 20,82,200 4,49,673 2531873
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