capital budgeting and managerial accounting 430692
Aug 29, 2021 | Uncategorized
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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.
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| Direct materials |
$ |
384,000 |
| Direct labor |
|
96,000 |
| Overhead |
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288,000 |
| Selling expenses |
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120,000 |
| Administrative expenses |
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80,000 |
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| Total costs and expenses |
$ |
968,000 |
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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:
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| %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.
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| %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.
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| %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.
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Complete the three column comparative income statement that shows the following:
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Annual operating income without the special order. |
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Annual operating income received from the new business only. |
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Combined annual operating income from normal business and the new business.
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