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Variable and Fixed Costs

Variable and Fixed Costs
Managerial accounting emphasizes short-term profit analysis, so the income statement is very important. Consequently, we’ll examine and discuss income statements in this case.

Keep the analysis from the SLP in mind when addressing the questions below.

Explain the main differences between the absorption and contribution (behavioral, variable) income statements. Will net income always be the same under the two approaches? If not, explain the difference.
Comment specifically on why companies feel the need to create yet another income statement in a different format. What information can the company gleam from this approach which is helpful as a tool in the decision making process.
Explain situations in which break-even analysis can be a useful tool. Provide a specific example.
The submission should be 2 to 4 pages and need to include answers to all the questions listed above. Include references in APA format.
Below find production and sales information for Herrestad Company. We will use this same company for the remaining SLPs.

Product information

Beginning inventory

Units produced

Units sold
Selling price per unit

Variable costs per unit

Direct material

Direct labor

Variable overhead

Variable selling and administrative
Fixed costs

Fixed manufacturing overhead

Fixed selling and administrative




Herrestad Company

Absorption Income Statement

For the period ending Dec. 31, 2012

Cost of goods sold

Gross profit (margin)

Selling and administrative expenses

Net income

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.

Category: Uncategorized

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