Question - Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,400 skateboards per year. Annual costs for 81,400 skateboards follow.
Direct materials$879,120
Direct labor 732,600
Overhead 951,000
Selling expenses 547,000
Administrative expenses 463,000
Total costs and expenses$3,572,720
A new retail store has offered to buy 8,600 of its skateboards for $63 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 81,400 units to 90,000 units; the remaining 50% of annual overhead costs are variable with respect to volume.
- Selling expenses are 80% variable with respect to number of units sold, and the other 20% of selling expenses are fixed.
- There will be an additional $1.4 per unit selling expense for this order.
- Administrative expenses would increase by a $910 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.