# Contribution Margin (behavioral, variable) income statement

Below find production and sales information for Herrestad Company.

Product information

Beginning inventory 0
Units produced 10,000

Units sold 8,000

Selling price per unit \$300
Variable costs per unit
Direct material 120
Direct labor 60

Fixed costs

Absorption Income Statement
For the period ending Dec. 31, 2011

Sales \$2,400,000
Cost of goods sold 1,960,000
Gross profit (margin) \$440,000
Net income \$260,000
Required:
Prepare a contribution margin (behavioral, variable) income statement for Herrestad Company. Prepare a second version assuming the selling price per unit increases to \$320 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 \$120 to \$140, but all information remains the same.

Solution Summary

Tutorial is in Excel (attached). Click in cells to see computations. The trick is to see how the contribution margin per unit (sales less variable cost) change and how this changes breakeven. This is shown for you in Excel. The cells are linked so you have a model to use for other similar problems.

\$2.19
• Plain text
• Cited sources when necessary
• Attached file(s)
• herrestad company contribution margin breakeven.xlsx

Carol Sargent, PhD

Rating 4.9/5

Active since 2010

BSc, University of Virginia
MSc, University of Virginia
PhD, Georgia State University

Responses 2393 | Videos 11

"I have tried jiving the numbers and still cant get them to work on your spreadsheet... all answers were wrong 1a, 1b, and 2 does have a reconciliation.... 3 are incorrect as well, I cannot figure out what I'm doing wrong the sheet looks good?"

"Thanks Carol. I don't want you to think that what is this guy doing? This was relevantly easy question compared to the rest. I also had the same results but i wanted my answers to be confirmed by an expert. Thank you so much and will be in touch during the week."

"Hello Carol, I just started working on this problem and I came across a question that I need clarification for, NPV was calculated as \$2074.00. is this per year for 8 years? I am very sorry that I may be bothering you but I tried to figure it out on my own however couldn't do it. Thanks"

"Hello Carol, if I ask you kindly to clarify the tax benefit of depreciation on the excel. it is probably my lack of excel knowledge. how did you calculate? as well as the after tax operating cash flows (I see that it is 1.00-0.35 but don't know why? I just want to learn as well. Thanks"

"Thanks for the answer. I need clafication on one thing though. Cell#D12, 4000 was multiplied by 3.32. is it just misstyped? is it supposed to be 3.35 instead?"