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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.

 

 

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