Question

Required information Problem 21-6A Analysis of price, cost, and volume changes for contribution margin and net income LO P2, A1 (The following information applies to the questions displayed below.) This year Burchard Company sold 44,000 units of its only product for $17.80 per unit. Manufacturing and selling the product required $129,000 of fixed manufacturing costs and $189,000 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 $4.90 3.90 0.49 0.29 Next year the company will use new material, which will reduce material costs by 60% and direct labor costs by 40% 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 49,000 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 20%. This plan will decrease unit sales volume by 10%. 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. Problem 21-6A Part 1 Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.) Plan 1 Plan 2 Per unit: Sales Variable Costs: Material Direct labor Variable overhead costs Variable S&A costs Total variable costs Contribution margin

Answer 1

1.

Per Unit	Plan 1	Plan 2
Sales	$ 17.80	$ 21.36
Variable Costs;
Material	$1.96	$ 1.96
Direct Labour	$ 2.34	$ 2.34
Variable Overhead Cost	$ .49	$.49
Variable Selling and Administrative Cost	$ .29	$.29
Total Variable Costs	$ 5.08	$5.08
Contribution Margin	$ 12.72	$16.28

2.

Plan 1

Contribution Margin Ratio

Choose Numerator /	Choose Denominator	= Contribution Margin Ratio
Contribution Margin Per Unit	Sales Per Unit	Contribution Margin Ratio
$ 12.72	$ 17.80	$ 71.46 %

Break-even Point in Dollers

Choose Numerator /	Choose Denominator	= Break-Even Point in Dollars
Total Fixed Costs	Contribution Margin Ratio	= Break-Even Point in Dollars
$ 318,000	71.46 %	$227,242.80

PLAN 2

Contibution Margin Ratio

Contribution Margin Per Unit	Sales Per Unit	= Contribution Margin Ratio
$ 16.28	$ 21.38	76.22%

Break-Even Point in Dollars

Total Fixed Cost /	Contribution Margin Ratio	Break-Even Point in Dollers
$ 318,000	76.22%	242,379.6 %

BURCHARD COMPANY

Forecasted Contribution Margin Income Statement

	Plan 1	Plan 2
Number of Units	44,000	39,600
Sales	$783,200	$845,856
Variable Cost	$ 223,520	$ 201,168
Contribution Margin	$559,680	$644,688
Fixed Cost	$318,000	$318,000
Income Before Taxes	$241,680	$326,688
Income Taxes	$84,588	$114,340.8
Net Income	$ 157,092	$212,347.2