Beginning inventory 0 Units produced 10,000 Units sold 8,000 Selling price per u
ID: 2624187 • Letter: B
Question
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:
i WILL RATE THE ANSWER THAT IS IN EXCEL FORMAT OR ONE THAT CAN BE EMAILED TO ME. THANK YOU
Product informationBeginning 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
Explanation / Answer
Contribution Margin Statement
Sales
20,00,000.00
Variable Cost
15,20,000.00
Total Contribution Income
4,80,000.00
Contribution Margin %
24.00%
Fixed Cost
3,00,000.00
Net Income
1,80,000.00
The difference exists because the fixed manufacturing overhead is for 10,000 units in contribution margin statement
If we allocate the fixed manufacturing overhead cost over 8000 units, we will get same result
Contribution Margin Statement @ $270 SP
Sales
21,60,000.00
Variable Cost
15,20,000.00
Total Contribution Income
6,40,000.00
Fixed Cost
3,00,000.00
Net Income
3,40,000.00
Breakeven Dollars =
Fixed Cost/ Contribution Margin %
12,50,000.00
Breakeven Quantity
5,000.00
b)Contribution Margin Statement
Sales
20,00,000.00
Variable Cost
17,60,000.00
Total Contribution Income
2,40,000.00
Contribution Margin %
12.00%
Fixed Cost
3,00,000.00
Net Income
-60,000.00
Breakeven Dollars =
Fixed Cost/ Contribution Margin %
25,00,000.00
Breakeven Quantity
10,000.00
Contribution Margin Statement
Sales
20,00,000.00
Variable Cost
15,20,000.00
Total Contribution Income
4,80,000.00
Contribution Margin %
24.00%
Fixed Cost
3,00,000.00
Net Income
1,80,000.00
The difference exists because the fixed manufacturing overhead is for 10,000 units in contribution margin statement
If we allocate the fixed manufacturing overhead cost over 8000 units, we will get same result
Contribution Margin Statement @ $270 SP
Sales
21,60,000.00
Variable Cost
15,20,000.00
Total Contribution Income
6,40,000.00
Fixed Cost
3,00,000.00
Net Income
3,40,000.00
Breakeven Dollars =
Fixed Cost/ Contribution Margin %
12,50,000.00
Breakeven Quantity
5,000.00
b)Contribution Margin Statement
Sales
20,00,000.00
Variable Cost
17,60,000.00
Total Contribution Income
2,40,000.00
Contribution Margin %
12.00%
Fixed Cost
3,00,000.00
Net Income
-60,000.00
Breakeven Dollars =
Fixed Cost/ Contribution Margin %
25,00,000.00
Breakeven Quantity
10,000.00
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