Assignment:
Variable and Fixed Costs
Below find production and sales information for Herrestad Company. We will use this same company.
| Product Information |
|
| |
|
| Beginning inventory |
0 |
| Units produced |
$10,000 |
| Units sold |
$8,000 |
| |
|
| Selling price per unit |
$250 |
| Variable costs per unit |
|
| Direct material |
$100 |
| Direct labor |
$50 |
| Variable overhead |
$30 |
| Variable selling and administrative |
$10 |
| |
|
| Fixed costs |
|
| Fixed manufacturing overhead |
$200,000 |
| Fixed selling and administrative |
$100,000 |
| |
|
| Herrestad company |
Absorption income statement
for the period ending Dec. 31, 2015 |
| |
|
| Sales |
$2,000,000 |
| Costs of goods sold |
$1,600,000 |
| Gross profit (margin) |
$400,000 |
| Selling and administrative expenses |
$180,000 |
| Net income |
$220,000 |
Required:
- Prepare a contribution margin (behavioral, variable) income statement for Herrestad Company, compare net operating profit from a contribution margin income statement with net income from an absorption income statement, and explain why this difference happens. Prepare a second version assuming the selling price per unit increases to $270 per unit.
- Use the original information to:
- Determine the number of units the company must sell to break even for the year.
- Compute break-even, assuming direct materials cost increase from $100 to $130, but all information remains the same.
The assignment must be 2 to 4 pages and needs to include answers to all the questions listed above. Show computations, discuss the results, and include references in APA format and References.