Accounting: Absorption Income Statement
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Below find production and sales information for Herrestad Company. We will use this same company for all the SLPs in this course.
Product information
Beginning inventory
0
Units produced
10,000
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Units sold
8,000
Selling price per unit
$300
Variable costs per unit
Direct material
120
Direct labor
60
Variable overhead
40
Variable selling and administrative
10
Fixed costs
Fixed manufacturing overhead
250,000
Fixed selling and administrative
100,000
Herrestad Company
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
Selling and administrative expenses
180,000
Net income
$260,000
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.
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Solution Summary
This solution includes two prepared absorption costing income statements (when selling price increases). Calculations are provided for break even units with original information and as direct costs per unit increase. This solution is formatted in the attached Excel file.
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