P16-38. Multi-Level Profitability Analysis

AccuMeter manufactures and sells its only product (Z1) in lot sizes of 1,000 units. Because of this approach, lot (batch)-level costs are regarded as variable for CVP analysis. Presented is sales and cost information for the year:

Sales revenue (75,000 units at $65) $4,875,000

Direct materials (75,000 units at $20) 1,500,000

Processing (75,000 units at $15) 1,125,000

Setup (150 lots at $2,500) 375,000

Batch movement (150 lots at $500) 75,000

Order filling (150 lots at $250) 37,500

Fixed manufacturing overhead 1,000,000

Fixed selling and administrative 450,000

Required

a. Create the traditional contribution income statement in good form.

b.Create a multi-level contribution income statement in good form. (Hint: First determine the appropriate cost hierarchy.)

c. What is the current contribution per lot (batch) of 1,000 units?

d. Management is contemplating introducing a limited number of specialty products. One product would sell for $80 per unit and have direct materials costs of $35 per unit. All other costs and all production and sales procedures will remain unchanged. What lot (batch) size is required for a contribution of $800 per lot?