Variable and Fixed Costs
Below find production and sales information for Herrestad Company. We will use this same company for Module 4.
| 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 submission should 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
