Question

Windmire Company manufactures and sells to local wholesalers approximately 300,000 units per month at a sales price of $ 4 per unit. Monthly costs for the production and sale of this quantity follow.
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 out-of-state distributor has offered to buy 50,000 units next month for $ 3.44 each. These units would be marketed in other states and would not affect Windtrax’s sales through its normal channels. A study of the costs of this new 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 one and one half times their normal rate to meet the distributor’s deadline.
Twenty- five percent of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 75% 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
Prepare a three-column comparative income statement that shows the following:
1. Monthly operating income without the special order (column 1).
2. Monthly operating income received from the new business only (column 2).
3. Combined monthly operating income from normal business and the new business (column 3).



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  • CreatedNovember 29, 2013
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