Question

The following information applies to the questions displayed below.]


This year Burchard Company sold 33,000 units of its only product for $18.40 per unit. Manufacturing and selling the product required $118,000 of fixed manufacturing costs and $178,000 of fixed selling and administrative costs. Its per unit variable costs follow.

Material		$	3.80
Direct labor (paid on the basis of completed units)			2.80
Variable overhead costs			0.38
Variable selling and administrative costs			0.18

Next year the company will use new material, which will reduce material costs by 60% and direct labor costs by 40% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory’s output is nearing its annual output capacity of 38,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 25%. This plan will decrease unit sales volume by 10%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same.

Required:

1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.)

The following information applies to the questions displayed below.]


This year Burchard Company sold 33,000 units of its only product for $18.40 per unit. Manufacturing and selling the product required $118,000 of fixed manufacturing costs and $178,000 of fixed selling and administrative costs. Its per unit variable costs follow.

Material		$	3.80
Direct labor (paid on the basis of completed units)			2.80
Variable overhead costs			0.38
Variable selling and administrative costs			0.18

Next year the company will use new material, which will reduce material costs by 60% and direct labor costs by 40% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory’s output is nearing its annual output capacity of 38,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 25%. This plan will decrease unit sales volume by 10%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same.

Required:

1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.)

2. Prepare a forecasted contribution margin income statement with two columns showing the expected results of plan 1 and plan 2. The statements should report sales, total variable costs, contribution margin, total fixed costs, income before taxes, income taxes (30% rate), and net income.

Answer 1

calculation of contribution margin per unit
	Plan A	Plan B
Selling price per unit	18.4	23
Less: Variable costs
Direct Material	1.52	1.52
Labor	1.68	1.68
Variable overhead costs	0.38	0.38
variable selling and admin costs	0.18	0.18
Total variable cost	3.76	3.76
Contribution Margin per unit	14.64	19.24
CM %	79.57%	83.65%
Fixed costs	296000	296000
Break even point in Dollar Sales	371,999.50	353,855.35
2.Forecasted Income Statement
	Plan A	Plan B
Sales	607,200.00	683,100.00
Total Variable costs	124,080.00	111,672.00
Contribution Margin	483,120.00	571,428.00
Total Fixed costs	296,000.00	296,000.00
Income before taxes	187,120.00	275,428.00
Income Taxes	56,136.00	82,628.40
Net Income	130,984.00	192,799.60