Calla Company produces skateboards that sell for 55 per unit

Calla Company produces skateboards that sell for $55 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,400 skateboards per year. Annual costs for 80,400 skateboards follow. Direct materials Direct labor Overhead Selling expenses 876,360 619,080 942,000 548,000 461,000 Total costs and expenses $3,446,440 A new retail store has offered to buy 14,600 of its skateboards for $50 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. 50 percent of overhead is fixed at any production level from 80,400 units to 95,000 units; the remaining 50% 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 $2.5 per unit selling expense for this order. Administrative expenses would increase by a $820 fixed amount. Required: 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. Do not round your intermediate calculation round your cost and expenses values to nearest whole decimal places.) CALLA COMPANY COMPARATIVE INCOME STATEMENTS AdditionalCombined Total Normal Volume Costs and expenses

Solution

Answers

Total

Fixed

Variable

Variable cost per unit

Direct Material

$       8,76,360.00

$                                    -  

$        8,76,360.00

$                10.900000

Direct labor

$       6,19,080.00

$                                    -  

$        6,19,080.00

$                  7.700000

Overhead

$       9,42,000.00

$                 4,71,000.00

$        4,71,000.00

$                  5.858209

Selling expenses

$       5,48,000.00

$                 1,64,400.00

$        3,83,600.00

$                  4.771144

Administrative expenses

$       4,61,000.00

$                 4,61,000.00

$                           -  

$                                -  

Total

$     34,46,440.00

$               10,96,400.00

$      23,50,040.00

$                29.229353

Normal Volume: 80400 units

Units

per unit

Variable amount

Fixed Amount

Total Amount

Sales revenue

80400

$                    55.000000

$            44,22,000

$                                -  

$          44,22,000

Cost & Expenses:

Direct Material

80400

$                    10.900000

$              8,76,360

$                                -  

$            8,76,360

Direct labor

80400

$                      7.700000

$              6,19,080

$                                -  

$            6,19,080

Overhead

80400

$                      5.858209

$              4,71,000

$                   4,71,000

$            9,42,000

Selling expenses

80400

$                      4.771144

$             3,83,600

$                   1,64,400

$            5,48,000

Administrative expenses

80400

$                                    -  

$                           -  

$                   4,61,000

$            4,61,000

Note: Selling expense per unit will be different from above, and administrative fixed cost is to increase from above

Additional Volume: 14600 units

Units

per unit

Variable amount

Fixed Amount

Total Amount

Sales revenue

14600

$                    55.000000

$              8,03,000

$                                -  

$            8,03,000

Cost & Expenses:

Direct Material

14600

$                    10.900000

$              1,59,140

$                                -  

$            1,59,140

Direct labor

14600

$                      7.700000

$              1,12,420

$                                -  

$            1,12,420

Overhead

14600

$                      5.858209

$                  85,530

$                                -  

$                85,530

Selling expenses

14600

$                      7.271144

$              1,06,159

$                                -  

$            1,06,159

Administrative expenses

14600

$                                    -  

$                           -  

$                             820

$                      820

Normal Volume

Additional Volume

Combined Total

Sales revenue

$                     44,22,000

$              8,03,000

$                52,25,000

Cost & Expenses:

Direct Material

$                       8,76,360

$              1,59,140

$                 10,35,500

Direct labor

$                       6,19,080

$              1,12,420

$                   7,31,500

Overhead

$                       9,42,000

$                  85,530

$                 10,27,530

Selling expenses

$                       5,48,000

$              1,06,159

$                   6,54,159

Administrative expenses

$                       4,61,000

$                        820

$                   4,61,820

Total Cost & Expenses

$                     34,46,440

$              4,64,069

$                 39,10,509

Operating Income

$                       9,75,560

$              3,38,931

$                 13,14,491

	Total	Fixed	Variable	Variable cost per unit
Direct Material	$       8,76,360.00	$                                    -	$        8,76,360.00	$                10.900000
Direct labor	$       6,19,080.00	$                                    -	$        6,19,080.00	$                  7.700000
Overhead	$       9,42,000.00	$                 4,71,000.00	$        4,71,000.00	$                  5.858209
Selling expenses	$       5,48,000.00	$                 1,64,400.00	$        3,83,600.00	$                  4.771144
Administrative expenses	$       4,61,000.00	$                 4,61,000.00	$                           -	$                                -
Total	$     34,46,440.00	$               10,96,400.00	$      23,50,040.00	$                29.229353