Calla Company produces skateboards that sell for $67 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,200 skateboards per year. Annual costs for 80,200 skateboards follow.
| Direct materials | $ | 922,300 | |
| Direct labor | 609,520 | ||
| Overhead | 955,000 | ||
| Selling expenses | 543,000 | ||
| Administrative expenses | 471,000 | ||
| Total costs and expenses | $ | 3,500,820 | |
A new retail store has offered to buy 14,800 of its skateboards for $62 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 80,200 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 $2.00 per unit selling expense for this order.
Administrative expenses would increase by a $850 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. (
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