Jones Products manufactures and sells to wholesalers approximately 300,000 packa
ID: 2534888 • Letter: J
Question
Jones Products manufactures and sells to wholesalers approximately 300,000 packages per year of underwater markers at $3.87 per package. Annual costs for the production and sale of this quantity are shown in the table.
A new wholesaler has offered to buy 50,000 packages for $3.42 each. These markers would be marketed under the wholesaler’s name and would not affect Jones Products’ sales through its normal channels. A study of the costs of this additional business reveals the following:
Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1½ times the usual labor rate.
35% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 65% of the annual overhead cost is variable with volume.
Complete the three-column comparative income statement that shows the following (Round your intermediate calculations and per unit cost answers to 3 decimals)
Jones Products manufactures and sells to wholesalers approximately 300,000 packages per year of underwater markers at $3.87 per package. Annual costs for the production and sale of this quantity are shown in the table.
Direct materials $ 384,000 Direct labor 96,000 Overhead 288,000 Selling expenses 120,000 Administrative expenses 80,000 Total costs and expenses $ 968,000A new wholesaler has offered to buy 50,000 packages for $3.42 each. These markers would be marketed under the wholesaler’s 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 1½ times the usual labor rate.
•35% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 65% 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. it Amounts Total Normal Volume Normal Volume New Business ess Combined 3.42 $ 1,161,000171,000 $ 1,332,000 Sales Variable costs 3.87 $ 1.280 Direct materials Direct labor Variable overhead 384,000 0.320 96,000 1.600 0.000 480,000 681,000 otal variable costs Contribution margin 171,000 1,332,000 Fixed costs Fixed overhead Administrative expenses Selling expenses 100,800 100,800 otal fixed costs 100,800 100,800 Operating incomeExplanation / Answer
Production Volume = 300,000 units Total $ Variable $ Fixed $ Per unit cost $ Direct Materials 384,000 384,000 - 1.28 Direct Labor 96,000 96,000 - 0.32 Overhead (35% - Fixed , 65% - Variable ) 288,000 187,200 100,800 0.62 Selling expenses 120,000 - 120,000 - Administrative expenses 80,000 - 80,000 - Total Cost and Expenses 968,000 667,200 300,800 2.22 1 Annual operating income without the special order. Jones Products Income Statement $ $ Sales Revenue ( 300,000 units x $ 3.87 per unit ) 1,161,000 Less:Variable Expenses ( 300,000 units x $ 2.22 ) (666,000) Contribution Margin (A ) 495,000 Less: Fixed Costs; Fixed Overheads 100,800 Selling expenses 120,000 Administrative expenses 80,000 Total fixed costs (B ) 300,800 Net income ( A - B ) 194,200 2 Annual operating income received from the new business only. Jones Products Income Statement $ $ Sales Revenue ( 50,000 units x $ 3.42 per unit ) (A ) 171,000 Less:Variable Expenses; Direct Materials ( 50,000 units x $ 1.28 ) 64,000 Direct Labor ( 50,000 units x $ 0.32 x 1.5 times ) 24,000 Variable overhead ( 50,000 units x $ 0.62 per unit ) 31,000 Total variable costs ( B ) 119,000 Contribution Margin (C = A - B ) 52,000 Less: Additional Fixed Costs ( Administrative expenses) (4,000) Net income 48,000 3 Combined annual operating income from normal business and the new business. Jones Products Income Statement $ $ Contribution Margin without special order 495,000 Contribution Margin from new business only 52,000 Total contribution Margin (A ) 547,000 Less: Fixed Costs; Fixed Overheads 100,800 Selling expenses 120,000 Administrative expenses ($ 80,000 + $ 4,000 ) 84,000 Total fixed costs (B ) 304,800 Net income ( A - B ) 242,200
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