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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
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, 2012
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.

Category: Uncategorized

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