Determine the number of units the company must sell to break

Reference no: EM131015110

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:

• 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 $130, but all information remains the same.

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

Reference no: EM131015110

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