Reference no: EM132523506

Question - Calla Company produces skateboards that sell for $52 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow.

Direct materials $989,780

Direct labor 719,840

Overhead 955,000

Selling expenses 559,000

Administrative expenses 461,000

Total costs and expenses $3,684,620

A new retail store has offered to buy 13,200 of its skateboards for $47 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.

40 percent of overhead is fixed at any production level from 81,800 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume.

Selling expenses are 70% variable with respect to number of units sold, and the other 30% of selling expenses are fixed.

There will be an additional $1.60 per unit selling expense for this order.

Administrative expenses would increase by a $870 fixed amount.

Required -

1. Make 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?