Calla Company produces skateboards that sell for $64 per unit. The company curre

Question

Calla Company produces skateboards that sell for $64 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,100 skateboards per year. Annual costs for 81,100 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses 843,440 656,910 946,000 556,000 469,000 3,471,350 Total coats and expenses A new retail store has offered to buy 8,900 of its skateboards for $59 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 81,100 units to 90,000 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 $1,000 fixed amount.

Explanation / Answer

calla company

comparative income statements

NOrmal volume Additional volume COmbined total sales revenue (81,100*64) (8,900*59) $5,190,400 $525,100 $5,715,500 Costs and expenses: Direct materials (843,440/81,100 * 8900) 843,440 92,560 936,000 Direct labour (656,910/81,100 * 8900) 656,910 72,090 729,000 fixed overhead (70%*943,600=>662,200 / 81,100*8,900 =>72,671) 946,000 72,671 1,018,671 selling expenses (556,000*70% =>389,200/81,100 * 8900)=>42,711 + (1.10*8900) =>42,711 + 9790 556,000 52,501 608,501 administrative expenses 469,000 1,000 470,000 total cost and expenses $3,471,350 $291,122 $3,762.472 operating income $1,719,050 $233,978 1,953,028

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