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Homework answers / question archive / Calla Company produces skateboards that sell for $65 per unit
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Calla Company produces skateboards that sell for $65 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,400 skateboards per year. Annual costs for 80,400 skateboards follow. |
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A new retail store has offered to buy 9,600 of its skateboards for $60 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. | |
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40 percent of overhead is fixed at any production level from 80,400 units to 90,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. |
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Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed. |
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| • | There will be an additional $2.8 per unit selling expense for this order. | |
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Administrative expenses would increase by a $970 fixed amount. |
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| 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. |
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(Do not round your intermediate calculation round your cost and expenses values to nearest whole decimal places.) |
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Answer:
| Normal Volume | Additional Volume | Combined Total | |
| Sales | 5,226,000 | 576,000 | 5,802,000 |
| Costs and expense:- | |||
| Direct material | 964,800 | 115,200 | 1,080,000 |
| Direct labour | 707,520 | 84,480 | 792,000 |
| Overhead | 950,000 | 68,060* | 1,018,060 |
| Selling Expenses | 551,000 | 66,355 | 617,355 |
| Administrative expenses | 462,000 | 970 | 462,970 |
| Total cost and expenses | 3,635,320 | 335,065 | 3,970,385 |
| Operating Income | 1,590,680 | 240,935 | 1,831,615 |
*Overhead of 9,600 units = Total overhead* Variable overhead %/total no. current units*Additional units
= $950,000*60%*9,600 units/80,400 units = $68,060
** Selling expenses for 9600 units= Total selling expenses*Variable expenses%*9600 units/80,400 units + Additional selling expenses per unit*9,600 units
= $551,000*60%*9,600/80,400 + $2.80*9,600 units = $66,355
