Question - Calla Company produces skateboards that sell for $50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,000 skateboards per year. Annual costs for 80,000 skateboards follow.
Direct materials $ 800,000
Direct labor 640,000
Overhead 960,000
Selling expenses 560,000
Administrative expenses 480,000
Total costs and expenses $ 3,440,000
A new retail store has offered to buy 10,000 of its skateboards for $45 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.
- Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the remaining 70% of annual overhead costs are variable with respect to volume.
- Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed.
- There will be an additional $2 per unit selling expense for this order.
- Administrative expenses would increase by a $1,000 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.