Maurice Tutor

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Category > Accounting Posted 11 Aug 2017 My Price 9.00

Cayman Products

Cayman Products manufactures and sells to wholesalers approximately 300,000 packages per year of underwater markers at $4 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 $ 968,000
 

 

A new wholesaler has offered to buy 50,000 packages for $3.44 each. These markers would be marketed under the wholesaler%u2019s name and would not affect Cayman Products%u2019 sales through its normal channels. A study of the costs of this additional business reveals the following:

 

%u2022 Direct materials costs are 100% variable.
%u2022

Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at one-and-one-half times the usual labor rate.
%u2022

25% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 75% of the annual overhead cost is variable with volume.
%u2022 Accepting the new business would involve no additional selling expenses.
%u2022 Accepting the new business would increase administrative expenses by a $4,000 fixed amount.

Complete the three-column comparative income statement that shows the following:

  Annual operating income without the special order.
  Annual operating income received from the new business only.
  Combined annual operating income from normal business and the new business.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 11 Aug 2017 02:08 PM My Price 9.00

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