Calla company produces skateboards that sell for 63 per

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Reference no: EM13593006

Calla Company produces skateboards that sell for $63 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 80,500 skateboards per year. Annual costs for 80,500 skateboards follow.


Direct materials	$	885,500
Direct labor		644,000
Overhead		944,000
Selling expenses		558,000
Administrative expenses		479,000

Total costs and expenses	$	3,510,500

A new retail store has offered to buy 19,500 of its skateboards for $58 per unit. The store is in a different market from Calla's regular customers and it 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.
•		40 percent of overhead is fixed at any production level from 80,500 units to 100,000 units; the remaining 60% 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 $1.9 per unit selling expense for this order.
•		Administrative expenses would increase by a $840 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.

Reference no: EM13593006

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