Part -1:
Managerial accounting emphasizes short-term profit analysis, so the income statement is very important. Consequently, we will 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 glean 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 needs to include answers to all the questions listed above. Include references in APA format.
Assignment Expectations
It is important to answer the questions above. The discussion should be two to four pages and written in a clear and concise manner.
Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
When your paper is done, upload it to the appropriate dropbox.
Part -2:
Below find production and sales information for Herrestad Company. We will use this same company for Module 4.
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Product Information
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Beginning inventory
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0
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Units produced
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$10,000
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Units sold
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$8,000
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Selling price per unit
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$250
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Variable costs per unit
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Direct material
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$100
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Direct labor
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$50
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Variable overhead
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$30
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Variable selling and administrative
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$10
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Fixed costs
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Fixed manufacturing overhead
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$200,000
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Fixed selling and administrative
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$100,000
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Herrestad company
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Absorption income statement
for the period ending Dec. 31, 2015
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Sales
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$2,000,000
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Costs of goods sold
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$1,600,000
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Gross profit (margin)
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$400,000
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Selling and administrative expenses
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$180,000
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Net income
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$220,000
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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.
SLP Assignment Expectations
It is important to answer the questions above. The discussion should be two to four pages and written in a clear and concise manner.
Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
When your paper is done, upload it to the appropriate dropbox.