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(Solved): Calla Company produces skateboards that sell for $55 per unit. The company currently has the capacit ...



Calla Company produces skateboards that sell for $55 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,200 skateboards per year. Annual costs for 81,200 skateboards follow.

     
Direct materials $ 933,800  
Direct labor   641,480  
Overhead   948,000  
Selling expenses   545,000  
Administrative expenses   469,000  
Total costs and expenses $ 3,537,280

A new retail store has offered to buy 13,800 of its skateboards for $50 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 81,200 units to 95,000 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 $2.60 per unit selling expense for this order.

Administrative expenses would increase by a $920 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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COMPARATIVE INCOME STATEMENTS CALLA COMPANY COMPARATIVE INCOME STATEMENTS Normal Volume Additional Volume Combined Total Sales 4,466,000 690,000 5,156
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