Question

DC Quiz Saved Required information [The following information applies to the questions displayed below.] This year Burchard Company sold 32,000 units of its only product for $18.60 per unit. Manufacturing and selling the product required $117,000 of fixed manufacturing costs and $177,000 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 $ 3.70 2.70 0.37 0.17 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 37,000 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, income taxes (35% rate), and net income. BURCHARD CO. Forecasted Contribution Margin Income Statement Plan 1 Plan 2 Number of units: 32,000 27,200 < Prev 2 of 2 -

Answer 1

Solution 2:

Computation of variable cost per unit
Particulars	Per unit
Direct material ($3.70*30%)	$1.11
Direct labor ($2.70*70%)	$1.89
Variable overhead	$0.37
Variable selling and administrative cost	$0.17
Variable cost per unit	$3.54

Burchard Company
Forecasted Contribution margin income statement
Particulars	Plan 1	Plan 2
Nos of units	32000	27200
Sales	$595,200	$657,696
Variable cost	$113,280	$96,288
Contribution Margin	$481,920	$561,408
Fixed Manufacturing Cost	$117,000	$117,000
Fixed Selling & Administrative Cost	$177,000	$177,000
Income before taxes	$187,920	$267,408
Income Tax (35%)	$65,772	$93,593
Net Income	$122,148	$173,815