Please help Calla Company produces skateboards that sell for $50 per unit. The c
ID: 2586700 • Letter: P
Question
Please help
Calla Company produces skateboards that sell for $50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,000 skateboards per year. Annual costs for 80,000 skateboards follow Problem 23-2A Analysis of income effects of additional business P1 A1 640,000 960,000 560,000 480,000 Administrative expenses·······.. A new retail store has offered to buy 10,000 of its skateboards for $45 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 antici pation of this additional business reveals the following Direct materials and direct labor are 100% variable Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the re- maining 70% of annual overhead costs are variable with respect to volume Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed There will be an additional $2 per unit selling expense for this order Administrative expenses would increase by a $1,000 fixed amount Required 1. 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 Check (1b) Added income from order, $123,000 2. Should Calla accept this order? What nonfinancial factors should Calla consider? Explain Analysis Component 3. Assume that the new customer wants to buy 15,000 units instead of 10,000 units-t will only buy 15,000 units or none and will not take a partial order. Without any computations, how does this change your answer for part 2?Explanation / Answer
1 Statement of Comparative Income
Working Note:
4.2 (336000/80000)
2 Yes the order should be accepted as the income of the co increases by $123000. Other Non financial Factors to be considered is that co should provide good quality products timely and effectively.
3
if the customer wants to buy 15000 units instead of 10000 units Calla will have to sacrifice its outside sale of 5000 units on which it is earning contribution of $ 97000 ((50-30.6)*5000) and by selling further 5000 units to customer Calla will be having income of $ 61500 ( 12.3 * 5000) thus Overall Income of the Calla will be Lower than calculated as per point 1
Thus Calla should not accept the order of 15000 units
Particulars Annual Income without Special Order Annual Income with Special Order Combined Annual Income from Normal and New Business Sales 80000*50 10000*45 80000*50 + 10000*45 Total Sales (a) 4000000 450000 4450000 Direct Material 800000 10000*10 = 100000 900000 Direct Labor 640000 10000*8 = 80000 720000 Overhead 960000 10000* 8.4 = 84000 1044000 Selling Expenses 560000 10000*4.2 = 42000 602000 Adm. Expenses 480000 Nil 480000 Additional Selling Expenses Nil 10000* 2= 20000 20000 Additional Adm. Expenses Nil 1000 1000 Total Cost (b) 3440000 327000 3767000 Income (a)-(b) 560000 123000 683000