Calla Company produces skateboards that sell for $63 per unit. The company curre

Question

Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow.

A new retail store has offered to buy 19,800 of its skateboards for $58 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.

30 percent of overhead is fixed at any production level from 80,200 units to 100,000 units; the remaining 70% 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 $1.10 per unit selling expense for this order.

Administrative expenses would increase by a $900 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 $ 890,220 Direct labor 705,760 Overhead 948,000 Selling expenses 545,000 Administrative expenses 471,000 Total costs and expenses $ 3,559,980

Explanation / Answer

Particulars With out special order With out special order Total Per unit Total Per unit Total Per unit Total Sales units        80,200.00        19,800.00     1,00,000.00 Sales revenue             63.00 50,52,600.00             58.00 11,48,400.00 62,01,000.00 Variable expenses: Direct materials             11.10     8,90,220.00             11.10     2,19,780.00 11,10,000.00 Direct labor               8.80     7,05,760.00               8.80     1,74,240.00     8,80,000.00 Overhead             8.274     6,63,600.00             8.274     1,63,831.42     8,27,431.42 selling expenses             4.757     3,81,500.00             4.757        94,185.79     4,75,685.79 Total (A)             32.93 26,41,080.00             32.93     6,52,037.21 32,93,117.21 Fixed expenses: overhead     2,84,400.00     2,84,400.00 Administrative     4,71,000.00              900.00     4,71,900.00 selling     1,63,500.00     1,63,500.00 Total (B)     9,18,900.00              900.00     9,19,800.00 Total expenses 35,59,980.00     6,52,937.21 42,12,917.21 Net profit 14,92,620.00     4,95,462.79 19,88,082.79

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