Question

Chap 23 Homework Seved Calla Company produces skateboards that sell for $58 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,400 skateboards per year. Annual costs for 81,400 skateboards follow Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses 5887,260 716,320 948,000 546,000 465,000 $3,562,580 points Skipped Book A new retail store has offered to buy 13.600 of its skateboards for $53 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: Print Deferences • Direct materials and direct labor are 100% variable . 30 percent of overhead is fixed at any production level from 81.400 units to 95.000 units; the remaining 70% 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 $2.30 per unit selling expense for this order. • Administrative expenses would increase by a $900 fixed amount Required: 1. 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 2. Should Calle accept this order?

Answer 1

Answer :-

1)A three column comparative Income Statement are as follows :-

CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
	Normal volume	Additional volume	Combined Total (Normal volume + Additional volume)
Sales (Note 1)	$4,721,200	$720,800	$5,442,000
Cost and Expense :
Direct Material	$887,260	$148,240	$1,035,500
Direct Labor	$716,320	$119,680	$836,000
Overhead	$948,000	$110,872	$1,058,872
Selling Expense	$546,000	$104,259	$650,259
Administrative Expenses	$465,000	$900	$465,900
Total Cost and Expense	$3,562,580	$483,951	$4,046,531
Operating Income (Sales - Total Cost and Expense)	1,158,620	$236,849	$1,395,469

Note 1:-

Normal volume :-

Total skateboards sales = 81,400

Sell price = $ 58 per unit

Sales = 81,400 × $58 = $4,721,200

Additional volume :-

Skateboards buys = 13,600 for $53 per unit

Sales = 13,600 × $53 = $ 720,800

Note 2 :-

Additional volume -

Direct Material for 81,400 units = $887,260

Direct Material per unit = $10.9

Direct Material for 13,600 units = $10.9 × 13,600 = $148,240

Direct Labor for 81,400 units = $716,320

Direct Labor per unit = $8.8

Direct Labor for 31,600 units = $8.8 × 13,600 =$119,680

Overhead-

It was given that 30 % of Overhead is fixed .

Variable Overhead for 81,400 units = $948,000 - 30% = $ 663,600

Variable cost for 13,600 units = (663,600/81400) × 13,600 = $110,872

Selling Expense -

It was given that 20% are fixed and Additional selling expense is $2.30 per unit.

Variable cost for 81,400 units = $546,000 - 20% = $436,800

Variable cost for 13,600 unit = ($436,800/81,400)× 13,600 = $72,979

Selling Expense = $ 72,979 + ( $2.30 × 13,600) = $104,259

Administrative Expenses - $900

2)Yes ,Calla should accept the offer as it will the operating income of $236,849.