Below find production and sales information for Herrestad Company. We will use this same company for the remaining SLPs.
| 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, 2011 |
|
|
Sales |
$2,000,000 |
|
Cost 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 need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format.
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