Calla Company produces skateboards that sell for 70 per unit

Calla Company produces skateboards that sell for $70 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,100 skateboards per year. Annual costs for 80100 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses 961,200 688, 860 952,000 559,000 467,000 3,628, 060 06 A new retalil store has offered to buy 9,900 of its skateboards for $65 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 80100 units to 90000 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 fixe There will be an additional $1.30 per unit selling expense for this order Administrative expenses would increase by a $1,000 fixed amount.

Solution

units 80,100 9,900 Normal Addittional Combined Volume volume total Sales 5607000 643500 6250500 costs and expenses Direct materials 961,200 118,800 1,080,000 Direct labor 688,860 85,140 774,000 overhead 952,000 58,831 1,010,831 Selling expenses 559,000 61,233 620,233 Administrative expense 467,000 1,000 468,000 total costs and expenses 3,628,060 325,004 3,953,064 operating income 1,978,940 318,496 2,297,436 Direct materials 961200/80100*9900= 118800 Direct labor 688860/80100*9900= 85140 overhead (952000*50%)/80100*9900= 58831 Selling expense (559000*70%)/80100*9900   + 1.30*9900= 61233