Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater markers at $6 per package. Annual costs for the production and sale of this quantity are shown in the table. Direct materials $ 576,000 Direct labor 144,000 Overhead . 320,000 Selling expenses 150,000 Administrative expenses . 100,000 Total costs and expenses $1,290,000 Check Operating income: (1) $1,110,000 (2) $126,000 A new wholesaler has offered to buy 50,000 packages for $5.20 each. These markers would be marketed under the wholesaler’s name and would not affect Jones Products’s 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. ∙ Twenty-five percent of normal annual overhead costs are fixed at any production level from 350,000 to 500,000 units. The remaining 75% of annual overhead costs are variable with volume. ∙ Accepting the new business would involve no additional selling expenses. ∙ Accepting the new business would increase administrative expenses by a $5,000 fixed amount. Required Prepare a three-column comparative income statement that shows the following: 1. Annual operating income without the special order (column 1). 2. Annual operating income received from the new business only (column 2). 3. Combined annual operating income from normal business and the new business (column 3).
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Jones Products manufactures and sells to wholesalers approximately 400,000 packages per year of underwater
markers at $6 per package. Annual costs for the production and sale of this quantity are shown in the table.
Direct materials $ 576,000
Direct labor 144,000
Overhead . 320,000
Selling expenses 150,000
Administrative expenses . 100,000
Total costs and expenses $1,290,000
Check Operating income:
(1) $1,110,000
(2) $126,000
A new wholesaler has offered to buy 50,000 packages for $5.20 each. These markers would be marketed
under the wholesaler’s name and would not affect Jones Products’s 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.
∙ Twenty-five percent of normal annual overhead costs are fixed at any production level from 350,000 to
500,000 units. The remaining 75% of annual overhead costs are variable with volume.
∙ Accepting the new business would involve no additional selling expenses.
∙ Accepting the new business would increase administrative expenses by a $5,000 fixed amount.
Required
Prepare a three-column comparative income statement that shows the following:
1. Annual operating income without the special order (column 1).
2. Annual operating income received from the new business only (column 2).
3. Combined annual operating income from normal business and the new business (column 3).
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