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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 are 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. What is the best way to put together a traditional contribution income statement in good form.

b. What is the best way to put together 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 con-

tribution of $800 per lot?