Reference no: EM131810364

Question - Calla Company produces skateboards that sell for $64 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,700 skateboards per year. Annual costs for 81,700 skateboards follow.

Direct materials $ 955,890

Direct labor 612,750

Overhead 952,000

Selling expenses 550,000

Administrative expenses 479,000

Total costs and expenses $ 3,549,640

A new retail store has offered to buy 8,300 of its skateboards for $59 per unit. The store is in a different market from Calla's regular customers and it 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 81,700 units to 90,000 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 $1.3 per unit selling expense for this order.

Administrative expenses would increase by a $950 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.