Reference no: EM131778654

Question - Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,400 skateboards per year. Annual costs for 80,400 skateboards follow.

Direct materials	$908,520
Direct labor	578,880
Overhead	956,000
Selling expenses	553,00
Administrative expenses	469,000
Total costs and expenses	$3,465,400

A new retail store has offered to buy 14,600 of its skateboards for $64 per unit. The store is in a different market from Dallas 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 80,400 units to 95,000 units; the remaining 60% 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 $2.00 per unit selling expense for this order.
• Administrative expenses would increase by a $930 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.