
Concept explainers
Prepare a three-column comparative income statement for (1) Normal business without special order, (2) New business, and (3) combined business.

Explanation of Solution
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare a three-column comparative income statement for (1) Normal business without special order, (2) New business, and (3) combined business as follows:
Company J | |||
Comparative Income Statements | |||
Particulars |
(1) Normal business (400,000 packages) (A) |
(2) New Business (50,000 packages) (B) |
(3) Combined |
Sales | $2,400,000 | $260,000 (W.N.6) | $2,660,000 |
Less: Costs and expenses | |||
Direct materials | 576,000 |
72,000 (W.N.7) | 648,000 |
Direct labor | 144,000 |
27,000 (W.N.8) | 171,000 |
320,000 |
30,000 (W.N.9) | 350,000 | |
Selling expenses | 150,000 | - | 150,000 |
Administrative expenses | 100,000 | 5,000 | 105,000 |
Operating income | $1,110,000 | $126,000 | $1,236,000 |
Table (1)
Working note 1:
Calculate the direct material cost per package for new business.
Working note 2:
Calculate the variable direct labor cost per package for new business.
Working note 3:
Calculate total direct labor cost per package for new business.
Working note 4:
Calculate the fixed overhead at any production level from 350,000 to 500,000 units for new business.
Working note 5:
Calculate the variable overhead per package for new business.
Working note 6:
Calculate the value of sales for new business.
Working note 7:
Calculate the direct material cost for new business.
Working note 8:
Calculate the direct labor cost for new business.
Working note 9:
Calculate the variable overhead for new business.
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Chapter 25 Solutions
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