Extra credit Question 7

Problem 5-5A (Algo) Contribution margin; income effects of alternative strategies LO C2, A1, P2 (The following information applies to the questions displayed below.] Burchard Company sold 28,000 units of its only product for $19.40 per unit this year. Manufacturing and selling the product required $286,000 of fixed costs. Its per unit variable costs follow. Direct materials Direct labor Variable overhead costs Variable selling and administrative costs $ 3.30 2.30 0.33 0.13 For the next year, management will use a new material, which will reduce direct materials costs to $1.65 per unit and reduce direct labor costs to $1.15 per unit. Sales, total fixed costs, variable overhead costs per unit, and variable selling and administrative costs per unit will not change. Management is also considering raising its selling price to $23.28 per unit, which would decrease unit sales volume to 26,600 units. 2. Prepare a contribution margin income statement for next year with two columns showing the expected results of (a) using the new material and (b) using the new material and increasing the selling price. BURCHARD COMPANY Contribution Margin Income Statement With new material With new material and price increase 26,600 Number of units: 28,000 0 0 $ 0 $ 0