Reference no: EM131540029

Question: Windtrax Company manufactures and sells to local wholesalers approximately 200,000 units per month at a sales price of $1 per unit. Monthly costs for the production and sale of this quantity follow.

Direct materials . . . . . . . . . . . . . . . . $ 30,000

irect labor . . . . . . . . . . . . . . . . . . . 12,000

Overhead . . . . . . . . . . . . . . . . . . . . . 50,000

Selling expenses . . . . . . . . . . . . . . . . 7,500

Administrative expenses . . . . . . . . . 31,500

Total costs and expenses . . . . . . . . . $131,000

A new out-of-state distributor has offered to buy 20,000 units next month for $0.80 each. These units would be marketed in other states and would not affect Windtrax's sales through its normal channels. A study of the costs of this new business reveals the following:

? Direct materials costs are 100% variable.

? Per unit direct labor costs for the additional units would be 100% higher than normal because their production would require double overtime pay to meet the distributor's deadline.

? Eighty percent of the normal annual overhead costs are fixed at any production level from 120,000 to 300,000 units. The remaining 20% is variable with volume.

? Accepting the new business would involve no additional selling expenses.

? Accepting the new business would increase administrative expenses by a $750 fixed amount.

Required: Prepare a three-column comparative income statement that shows the following:

1. Monthly operating income without the special order (column 1).

2. Monthly operating income received from the new business only (column 2).

3. Combined monthly operating income from normal business and the new business (column 3).