Question

Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $3.93 per package. Annual costs for the production and sale of this quantity are shown in the table. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 512.000 128,000 384,000 160,000 107.000 $1,291,600 A new wholesaler has offered to buy 67,000 packages for $3.34 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 12 times the usual labor rate. • 30% of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. The remaining 70% 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 $4,000 fixed amount

Answer 1

Solution 1-3:

Particulars	Per unit amount		Total
	Normal Volume	New Business	Normal Volume	New Business	Combined
Sales	$3.93	$3.34	$1,572,000.00	$223,780.00	$1,795,780.00
Variable costs:
Direct materials	$1.28	$1.28	$512,000.00	$85,760.00	$597,760.00
Direct labor	$0.32	$0.48	$128,000.00	$32,160.00	$160,160.00
Variable overhead	$0.67	$0.67	$268,800.00	$45,024.00	$313,824.00
Total variable costs	$2.27	$2.43	$908,800.00	$162,944.00	$1,071,744.00
Contribution margin	$1.66	$0.91	$663,200.00	$60,836.00	$724,036.00
Fixed Costs
Fixed manufacturing overhead			$115,200.00	$0.00	$115,200.00
Selling expenses			$160,000.00	$0.00	$160,000.00
Administrative expenses			$107,000.00	$4,000.00	$111,000.00
Total fixed expenses			$382,200.00	$4,000.00	$386,200.00
Net Operating income			$281,000.00	$56,836.00	$337,836.00

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