Compute break even assuming direct materials cost, Cost Accounting

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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

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

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.

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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