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 anticipa- tion 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 ex penses 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?

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 anticipa- tion 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 ex penses 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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