Calla Company produces skateboards that sell for $68 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,100 skateboards per year. Annual costs for 80,100 skateboards follow.

Direct materials $ 897,120
Direct labor 608,760
Overhead 941,000
Selling expenses 559,000
Administrative expenses 463,000
Total costs and expenses $ 3,468,880

A new retail store has offered to buy 14,900 of its skateboards for $63 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
30 percent of overhead is fixed at any production level from 81,200 units to 90,000 units, the remaining 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 $2.70 per unit selling expense for this order
Administrative expenses would increase by a $940 fixed amount.

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

since the special order does not affect current normal sales, its analysis should only consider incremental expenses, not regular expenses:

A) Income statement without the special order

total revenue = $68 x 80,100 = $5,446,800

- COGS                                     = ($2,446,880)

gross profit                               = $2,999,920

- SG&A                                      = ($1,022,000)

net income                               = $1,977,920

B) incremental revenue from special order = 14,900 x $63 = $938,700

incremental costs:

incremental gain from special order = $938,700 - $607,942 = $330,758

Income statement with the special order

total revenue                            = $6,385,500

- COGS                                     = ($2,930,600)

gross profit                               = $3,454,900

- SG&A                                      = ($1,146,222)

net income                               = $2,308,678

the correct answer is:

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