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 800,000 640,000 960,000 560,000 480,000 Direct labor Overhead Selling expenses Administrative expenses 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: 1. 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. 2. Should Calla accept this order?
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 800,000 640,000 960,000 560,000 480,000 Direct labor Overhead Selling expenses Administrative expenses 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: 1. 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. 2. Should Calla accept this order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required 1
Required 2
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.
Show less A
CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
(a) Normal
Volume
(b) Additional (C) Combined
Volume
Total
Costs and expenses:
Total costs and expenses
Operating income
Transcribed Image Text: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
640,000
960,000
560,000
480,000
Direct labor
Overhead
Selling expenses
Administrative expenses
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:
1. 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.
2. Should Calla accept this order?
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