Variable and Fixed Costs Module 1 – SLP Variable and Fixed Costs Below find production and sales information for Herrestad Company. We will use this same company for all the SLPs in this course. Product information Beginning inventory 0 Units produced 10,000 Units sold 8,000 Selling price per unit $250 Variable costs per unit Direct material 100 Direct labor 50 Variable overhead 30 Variable selling and administrative 10 Fixed costs Fixed manufacturing overhead 200,000 Fixed selling and administrative 100,000 Herrestad Company Absorption Income Statement For the period ending Dec. 31, 2011 Sales $2,000,000 Cost of goods sold 1,600,000 Gross profit (margin) $400,000 Selling and administrative expenses 180,000 Net income $220,000 Required: Prepare a contribution margin (behavioral, variable) income statement for Herrestad Company. Prepare a second version assuming the selling price per unit increases to $280 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 $120, but all information remains the same. The submission should be 2 to 4 pages and need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format. Grading rubric. Click here. When your paper is done, send it in to CourseNet. Module 2 – SLP Allocation of Fixed Costs Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total) for the company. Use ABC to allocate all fixed costs to the two products. Background information Total Prod A Prod B Beginning inventory 0 Units produced 10,000 2,500 7,500 Units sold 8,000 2,000 6,000 Selling price per unit $250 460 180 Variable costs per unit Direct material 100 280 40 Direct labor 50 50 50 Variable overhead 30 45 25 Variable selling and admin. exp. 10 13 9 Fixed costs Fixed manufacturing overhead 200,000 Fixed selling and administrative 100,000 Production runs (not $) 100 65 35 Number of sales reps (not $) 25 15 10 Here are the first few lines of the segmented income statement to help you get started. Complete the statement in good format and make sure you allocate the fixed costs to the two products. When done, comment on the information and the relative profitability of the two products. Herrestad Company Segmented Income Statement For the period ending Dec. 31, 2011 A B Total Sales $920,000 $1,080,000 $2,000,000 Variable costs: Direct material 560,000 240,000 800,000 The submission should be 2 to 4 pages and need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format. Grading rubric. Click here. When your paper is done, send it in to CourseNet. Module 3 – SLP Budgeting Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis. Herrestad Company receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,000 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $150 per unit, direct materials costs will decrease by $12 per unit and Herrestad does not have to incur any variable selling and administrative expenses. Make a list of the expenses and amounts that are relevant for this decision. How much with the sale of this product contribute to the profitability of Herrestad? What if the company only pays $140 per unit? How does this change the contribution towards profitability? If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision? The submission should be 2 to 4 pages and need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format. Grading rubric. Click here. When your paper is done, send it in to CourseNet.