Required information The following information applies to the questions displaye
ID: 2338466 • Letter: R
Question
Required information The following information applies to the questions displayed below This year Burchard Company sold 39,000 units of its only product for $16.80 per unit. Manufacturing and selling the product required $124,000 of fixed manufacturing costs and $184,000 of fixed selling and administrative costs. Its per unit variable costs follow Material Direct labor (paid on the basis of completed unita) Variable overhead costs Variable selling and administrative costs $4.40 3.40 0.44 0.24 Next year the company will use new material, which will reduce material costs by 70% and direct labor costs by 30% 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 44,000 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 30%. This plan will decrease unit sales volume by 15%. 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. 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, i rate), and net income.Explanation / Answer
Revised material cost per unit for both plan (4.40-(4.40*70%))
1.32
Revised labor cost per unit for both plan (3.40-(3.40*30%))
2.38
Revised selling price under plan 2 (16.80+ (16.80*30%))
21.84
Revised unit sold under plan 2 (39000-(39000*15%))
33150
Plan
Plan 1
Plan 2
Number of units
39000
33150
Selling price per unit
16.80
21.84
Sale value (multiply of both)
655200
723996
Revised material cost per unit
1.32
1.32
Revised labor cost per unit
2.38
2.38
Variable overhead per unit
0.44
0.44
Variable selling and administration expense
0.24
0.24
Variable cost per unit
4.38
4.38
Number of units
39000
33150
Total variable cost
(variable cost per unit * Number of units)
170820
145197
Solution
Burchard Co.
Forecasted contribution margin
Plan
Plan 1
Plan 2
Number of units
39000
33150
Sales
655200.00
723996.00
Less: total variable costs
170820.00
145197.00
Contribution Margin
484380.00
578799.00
Less: Total fixed costs (124000+184000)
308000.00
308000.00
Income before tax
176380.00
270799.00
Less: income tax (income before tax*30%)
52914.00
81239.70
Net income
123466.00
189559.30
Revised material cost per unit for both plan (4.40-(4.40*70%))
1.32
Revised labor cost per unit for both plan (3.40-(3.40*30%))
2.38
Revised selling price under plan 2 (16.80+ (16.80*30%))
21.84
Revised unit sold under plan 2 (39000-(39000*15%))
33150
Plan
Plan 1
Plan 2
Number of units
39000
33150
Selling price per unit
16.80
21.84
Sale value (multiply of both)
655200
723996
Revised material cost per unit
1.32
1.32
Revised labor cost per unit
2.38
2.38
Variable overhead per unit
0.44
0.44
Variable selling and administration expense
0.24
0.24
Variable cost per unit
4.38
4.38
Number of units
39000
33150
Total variable cost
(variable cost per unit * Number of units)
170820
145197
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