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Herrestad Company contribution margin (behavioral, variable)

I have no idea how this thing works. Could really use some to tell me how to makes the numbers make sense.

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
$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. Prepare a second version assuming the selling price per unit increases to $280 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 $120, 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.

Solution Preview

Your tutorial is attached in Excel which gives you the ...

Solution Summary

Your tutorial is attached in Excel which gives you the contribution margin income statement using variable costing (treats fixed manufacturing overhead as period cost). Breakeven formula for original data and revised material costs are shown and worked. As an illustration, a traditional multi-step income statement with gross profit computed is also shown for original data and the price change.

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