Problem -
We're using a different fictitious company for the last two modules, the managerial accounting portion of this course. Below find production and sales information for Lewis Company.
Product information
Prod B
Beginning inventory 0
Units produced 10,000
Units sold 9,000
Selling price per unit $300
Variable costs per unit
Direct material 120
Direct labor 60
Variable overhead 40
Variable selling and administrative 10
Fixed costs
Fixed manufacturing overhead 250,000
Fixed selling and administrative 100,000
Lewis Company
Absorption Income Statement
For the period ending Dec. 31, 2015
Sales $2,700,000
Cost of goods sold 2,205,000
Gross profit (margin) $495,000
Selling and administrative expenses 190,000
Net income $305,000
Prepare a contribution margin (behavioral, variable) income statement for Lewis 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 $320 per unit.
Further, answer break even questions below. 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 $120 to $150, but all information remains the same.