Reference no: EM1314013

Comparative income statements at various capacity levels.

Analysis of income effects of additional business L.O. C1, A1
Jones Products manufactures and sells to wholesalers approximately 500,000 packages per year of underwater markers at $4 per package. Annual costs for the production and sale of this quantity are shown in the table.
Direct materials $ 640,000
Direct labor 160,000
Overhead 480,000
Selling expenses 200,000
Administrative expenses 133,000
Total costs and expenses $1,613,000
A new wholesaler has offered to buy 83,000 packages for $3.44 each. These markers would be marketed under the wholesaler\'s name and would not affect Jones Products\' sales through its normal channels. A study of the costs of this additional business reveals the following:

• Direct materials costs are 100% variable.
• Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at one-and-one-half times the usual labor rate.
• 30% of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 70% of the annual overhead cost

is variable with volume.

• Accepting the new business would involve no additional selling expenses.
• Accepting the new business would increase administrative expenses by a $4,000 fixed amount.

1. Annual operating income without the special order (column 1).
2. Annual operating income received from the new business only (column 2).
3. Combined annual operating income from normal business and the new business (column 3).
Jones PRODUCTS
Comparative Income Statements
(1) (2) (3)
Homework 

Direct materials	$ 640,000
Direct labor	160,000
Overhead	480,000
Selling expenses	200,000
Administrative expenses	133,000
Total costs and expenses	$1,613,000
Direct materials	$ 640,000

A new wholesaler has offered to buy 83,000 packages for $3.44 each. These markers would be marketed under the wholesaler\'s name and would not affect Jones Products\' sales through its normal channels. A study of the costs of this additional business reveals the following:

• Direct materials costs are 100% variable.
• Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at one-and-one-half times the usual labor rate.
• 30% of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 70% of the annual overhead cost is variable with volume.
• Accepting the new business would involve no additional selling expenses.
• Accepting the new business would increase administrative expenses by a $4,000 fixed amount.

1. Annual operating income without the special order (column 1).
2. Annual operating income received from the new business only (column 2).
3. Combined annual operating income from normal business and the new business (column 3).

Jones PRODUCTS
Comparative Income Statements
(1) (2) (3)
Homework

JONE PRODUCTS
COMPARATIVE INCOME STATEMENTS
	Normal   Volume	New  Business	Combined
Sales	$	$	$
Costs and expenses:
Direct materials
Direct labor
Overhead
Selling expenses
Administrative expenses
Total costs and expenses
OPERATING INCOME	$	$	$