Posted: December 15th, 2016
ompute break-even, assuming direct materials cost increase from $100 to $130, but all information remains the same.
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.
answers to all the questions listed above. Show computations, discuss the results, and include references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
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