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This year Burchard Company sold 26,000 units of its only product for $19.80 per unit. Manufacturing and selling the product required $111,000 of fixed manufacturing costs and $171,000 of fixed selling and administrative costs. Its per unit variable costs follow.

This year Burchard Company sold 26,000 units of its only product for $19.80 per unit. Manufacturing and selling the product required $111,000 of fixed manufacturing costs and $171,000 of fixed selling and administrative costs. Its per unit variable costs follow.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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This year Burchard Company sold 26,000 units of its only product for $19.80 per unit. Manufacturing and selling the product required $111,000 of fixed manufacturing costs and $171,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs Sales Variable costs Contribution margin $ 3.10 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 sales price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 31,000 units. Two plans are being considered. Under plan 1, the company will keep the 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 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 Fixed costs Income before taxes Income taxes Net Income (loss) 2.10 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. Number of units: 0.31 BURCHARD CO. Forecasted Contribution Margin Income Statement Plan 1 $ 0.11 26,000 0 0 0 $ Plan 2 22,100 0 0 0
Transcribed Image Text:This year Burchard Company sold 26,000 units of its only product for $19.80 per unit. Manufacturing and selling the product required $111,000 of fixed manufacturing costs and $171,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material Direct labor (paid on the basis of completed units) Variable overhead costs Variable selling and administrative costs Sales Variable costs Contribution margin $ 3.10 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 sales price to reduce the number of units sold because the factory's output is nearing its annual output capacity of 31,000 units. Two plans are being considered. Under plan 1, the company will keep the 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 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 Fixed costs Income before taxes Income taxes Net Income (loss) 2.10 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. Number of units: 0.31 BURCHARD CO. Forecasted Contribution Margin Income Statement Plan 1 $ 0.11 26,000 0 0 0 $ Plan 2 22,100 0 0 0
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