Problem
AccuMeter manufactures and sells its only product (Z1) in lot sizes of 500 units. Because of this approach, lot (batch) level costs are regarded as variable for CVP analysis. Presented is sales and cost information for the year 2014:
Sales Revenue (50,000 units at $45)................................. $2,250,000
Direct Materials (50,000 units at $12)...............................$600,000
Processing (50,000 units at $18)........................................$900.000
Setup (100 lots at $200).........................................................$200,000
Batch movement (100 lots at $400).................................$40,000
Order filling (100 lots at $200)............................................$20,000
Fixed manufacturing overhead ..........................................$800,000
Fixed selling and administrative.........................................$300,000
a. Prepare a traditional contribution income statement in good form.
b. Prepare a multi-les el contribution income statement in good form. t Hint First determine the appropriate cost hierarchy.)
c. What is the current contribution per lot batch of 500 units?
d. Management is contemplating introducing a limited number of specialty products. One product would sell for $65 per unit and have direct materials cost of $17 per unit. All other costs and all production and sales procedures will remain unchanged. What lot (batch) size is required for a contribution of $700 per lot?