Help Save Jones Products manufactures and sells to wholesalers approximately 200

Question

Help Save Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.83 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 $256,000 64,000 192,000 80,000 ?53,000 $645,000 A new wholesaler has offered to buy 33,000 packages for $3.47 each. These markers would be marketed under the wholesal name and would not affect Jones Products' 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% times the usual labor rate. * 30% of the normal annual overhead costs are fixed at any production level fo m 150,000 to 300,000 units. The remaining 70% of the annual overhead cost is variable with volume. Accepting the new business would involve no additional selling expenses Accepting the new business would increase administrative expenses by a $4,000 fixed amount Required: Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals) 1. Annual operating income without the special order 2. Annual operating income received from the new business only 3. Combined annual operating income from normal business and the new business.

Explanation / Answer

Answer 1. Per Unit Amounts Total Normal Volume New Business Normal Volume New Business Combined Sales                          3.83                         3.47                  766,000.00              114,510.00        880,510.00 Less: Variable Costs Direct Materials                          1.28                         1.28                  256,000.00                42,240.00        298,240.00 Direct Labor                          0.32                         0.48                     64,000.00                15,840.00          79,840.00 Overhead                          0.67                         0.67                  134,400.00                22,176.00        156,576.00                          2.27                         2.43                  454,400.00                80,256.00        534,656.00 Contribution                          1.56                         1.04                  311,600.00                34,254.00        345,854.00 Less: Fixed Cost Overhead                     57,600.00                               -            57,600.00 Selling Exp.                     80,000.00                               -            80,000.00 Administrative Exp.                     53,000.00                  4,000.00          57,000.00                  190,600.00                  4,000.00        194,600.00 Operating Income                  121,000.00                30,254.00        151,254.00 Answer 2. Total Incremental Costs of: Making the Units Buying the Units Variable Manufacturing Costs - 43,000 Units X 5.15                   221,450 Fixed cost related to making the units                      83,000 Cost to buy the Units - 43,000 Units X $3.90                  167,700 Total Costs                   304,450                  167,700 Should the Company Continue to manufacture the part, or should it buy the part from the outside supplier Buy from ouside Supplier Allocated Fixed Cost is not relevant for Decision making or taken in accounting for Total Cost of the Procduct, since it will havve to beincurred, whether purchased or make the product.

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