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Variable and Fixed Costs

Below find production and sales information for Herrestad Company. We will use this same company for Module 4.

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, 2015

Sales	$2,000,000
Costs 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, 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.

The submission should be 2 to 4 pages and needs to include answers to all the questions listed above. Show computations, discuss the results, and include references in APA format. And References