Jones Products manufactures and sells to wholesalers approximately 200,000 packa

Question

Jones Products manufactures and sells to wholesalers approximately 200,000 packages per year of underwater markers at $3.82 per package. Annual costs for the and sale of this quantity are shown in the table. production 256,000 Direct materials Direct labor Overhead Selling expenses Administrative expenses 64,000 192,000 80,000 53,000 645,000 Total costs and expenses $ A new wholesaler has offered to buy 33,000 packages for $3.48 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 1% times the usual labor rate.

Explanation / Answer

1. Calculation of annual operating income -

2. Calculation of Net operating income from new buiness only -

3. Calculation of annual operating income from normal buiness and new buiness -

Fixed expenses are allocated on actual capacity utilization.

Please note all values are in $.

in case of any clarification required please comment.

Output 200000 Particulars Existing Direct materials 256000 Direct labour 64000 overhead 192000 selling expenses 80000 adminitrative exp. 53000 Total cost and expenses 645000 Sales Value @3.82 764000 Annual operating income 119000

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