What are the variable overhead of total normal volume, new business and combined

Question

What are the variable overhead of total normal volume, new business and combined?

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 production and sale of this quantity are shown in the table Direct materials Direct labor Overhead Selling expenses Administrative expenses $256,000 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 $3.40 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 150,000 to 300,000 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 $3,000 fixed amount.

Explanation / Answer

Per unit amounts Total amounts Normal New Normal New Combined Sales 3.820 3.400 764000 112200 876200 Variable costs: Direct materials 1.280 1.28 256000 42240 298240 Direct labor 0.320 0.48 64000 15840 79840 Variable overhead 0.624 0.624 124800 20592 145392 Total variable costs 444800 78672 523472 Contribution margin 319200 33528 352728 Fixed costs: Manufacturing overhead 67200 0 67200 Selling expenses 80000 0 80000 Administrative expenses 53000 3000 56000 Total fixed costs 200200 3000 203200 Operating income 119000 30528 149528

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