Question

Required information (The following information applies to the questions displayed below) This year Burchard Company sold 45,000 units of its only product for $18.00 per unit. Manufacturing and selling the product required $130,000 of fixed manufacturing costs and $190,000 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 $ 5.00 4.00 8.50 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 50,000 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

Answer 1

	Plan 1	Plan 2
Selling Price per unit	18	23.4
Units	45000	38250
Variable cost per unit	5.1	5.1
Contribution Margin per Unit	12.9	18.3
Contribution Margin Ratio = Contribution Margin/Sales	71.667%	78.205%
Break even point in dollars = Fixed costs/Contribution Margin ratio	446511.6279	409180.3279
2.Forecasted Income Statement
	Plan 1	Plan 2
Sales	810,000	895,050
Total Variable costs	229,500	195,075
Contribution Margin	580,500	699,975
Total Fixed costs	320,000	320,000
Income before taxes	260,500	379,975
Income Taxes	104,200	151,990
Net Income	156,300	227,985

A В C Plan 2 Plan 1 1 =B2*1.3 2 Selling Price per unit 3 Units 4 Variable cost per unit 18 -B3*0.85 45000 =5 *30%+4*0.7+0.5+0.3 5*30%+4*0.7+0.5+0.3 -B2-B4 5 Contribution Margin per Unit 6 Contribution Margin Ratio Contribution Margin/Sales 7 Break even point in dollars Fixed costs/Contribution Margin ratio (130000+190000)/B6 (130000+190000)/C6 ЕC2-C4 =B5/B2 ЕC5/C2 9 10 2.Forecasted Income Statement Plan 1 -B2*B3 3в3*B4 ЕВ12-B13 = 130000+190000 -B14-B15 -B16*40% -B16-B17 Plan 2 -C2*C3 |ЕC3*С4 C12-C13 - 130000+190000 11 12 Sales 13 Total Variable costs 14 Contribution Margin 15 Total Fixed costs 16 Income before taxes EC14-C15 EC16*40% C16-C17 17 Income Taxes 18 Net Income 19