Reference no: EM132830191
Problem - Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $3.90 per package. Annual costs for the production and sale of this quantity are shown in the table.
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Direct materials
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$512,000
|
|
Direct labor
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128,000
|
|
Overhead
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384,000
|
|
Selling expenses
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160,000
|
|
Administrative expenses
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107,000
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Total costs and expenses
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$1,291,000
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A new wholesaler has offered to buy 67,000 packages for $3.40 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 1½ times the usual labor rate.
35% of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. The remaining 65% of the annual overhead costs are variable with volume.
Accepting the new business would involve no additional selling expenses.
Accepting the new business would increase administrative expenses by a $2,000 fixed amount.
Required - Complete the three-column comparative income statement that shows the following:
1. Annual operating income without the special order.
2. Annual operating income received from the new business only.
3. Combined annual operating income from normal business and the new business.