Jones Products manufactures and sells to wholesalers approximately 400,000 packa

Question

Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $6 per package. Annual costs for the production and sale of this quantity are shown In the table. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 576,800 144,880 328,888 15e,888 18e,888 $1,29e,88e A new wholesaler has offered to buy 50,000 packages for $5.20 each. These markers would be marketed under the wholesaler's name and would not affect Jones Products's sales through its normal channels. A study of the costs of this additional business reveals the following: Direct materials costs are 100% variable Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1/2 times the usual labor rate Twenty-five percent of the normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. The remaining 75% of the annual overhead cost is variable with volume Accepting the new buslness would Involve no additional selling expenses. Accepting the new buslness would Increase administrative expenses by a $5,000 fixed amount. . . Required Complete the three-column comparative Income statement that shows the following. (Do not round Intermedlete calculations and round per unlt cost answers to 2 declmal places.) 1. Annual operating Income without the special order. 2. Annual operating Income recelved from the new business only. 3. Combined annual operating Income from normal business and the new buslness. er Unit Amou Normal Volume New Business Normal Volume New Business Combined Sales 5.20?$ 2.400,000?$ 260,000 s 2,660,000 Variable costs Direct materials Direct labor Variable overhead 0.36 576,000 144,000 320,000 otal variable costs 0.36 0.00 1,040,000 1,360,000 260,000 2,660,000 Fixed costs: Fixed overhead Selling expenses Administrative expenses otal fixed costs Operating income

Explanation / Answer

per unit amounts    total

normal volume new business normal volume$ new business$ combined$ sales 6 5.2 2400000 260000 2660000 variable cost direct material 1.44 1.44 576000 72000 648000 direct labor 0.36 0.54 144000 27000 171000 variable overhead 0.6 0.6 240000 30000 270000 total variable costs 2.4 ?2.58 960000 129000 1089000 fixed cost fixed overhead 0.2 ----- 80000 ----- 80000 selling exp 0.375 ----- 150000 ----- 150000 admin exp 0.25 0.1 100000 5000 105000 total fixed cost 330000 5000 335000 operating income 1110000 126000 1236000

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