Jones Products manufactures and sells to wholesalers approximately 200,000 packa

Question

Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.85 per package. Annual costs for the production and sale of this quantity are shown in the table.

A new wholesaler has offered to buy 33,000 packages for $3.37 each. These markers would be marketed under the wholesaler’s name and would not affect Jones Products’ sales through its normal channels. A study of the costs of this additional business reveals the following:

Direct materials costs are 100% variable.

Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1½ times the usual labor rate.

25% of the normal annual overhead costs are fixed at any production level from 150,000 to 300,000 units. The remaining 75% of the annual overhead cost is variable with volume.

Accepting the new business would involve no additional selling expenses.

Accepting the new business would increase administrative expenses by a $5,000 fixed amount.

Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals)

1. Annual operating income without the special order.
2. Annual operating income received from the new business only.
3. Combined annual operating income from normal business and the new business.

Direct materials $ 256,000 Direct labor 64,000 Overhead 192,000 Selling expenses 80,000 Administrative expenses 53,000 Total costs and expenses $ 645,000

Explanation / Answer

Overhead cost          192,000 Fixed 25% =192000*25%              48,000 Variable 75% =192000*75%            144,000 Current level-200,000 New Sale Order-33,000 Total- 233,000 Per unit Total Per unit Total Sale Price                 3.85            770,000                   3.37    111,210              881,210 Direct materials                 1.28            256,000                   1.28      42,240              298,240 Direct labor                 0.32              64,000                   0.48      15,840                79,840 Overhead                         -   Fixed                 0.24              48,000                -                  48,000 Variable                 0.72            144,000                   0.72      23,760              167,760 Selling expenses                 0.40              80,000                -                  80,000 Administrative expenses                 0.27              53,000         5,000                58,000 Profit            125,000      24,370              149,370

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.