¶ … Margin
Contribution Income Statement
Sales (9000 units sold)
2,700,000
Variable Expenses
Product costs (120+60=40)x9000
1,980,000
Selling and admin 10x9000
Contribution Margin (70 per unit)
Fixed Expenses
Manufacturing Overhead
Selling and administrative
Net Operating Income
The net income on the contribution income statement is $25,000 lower than the $305,000 on the absorption income statement because $25 in fixed expenses is assigned to each unit cost (Accounting for Management, 2012). Where 10,000 units were produced, but only 9,000 sold, that leaves 1,000 units in inventory. The additional $25,000, 25 x 1,000, is listed in the inventory account.
Contribution Margin Income Statement
Sales 9,000 units at 330
2,970,000
Variable Expenses
Production (120+60+40)x9,000
1,980,000
Selling and admin 10x9,000
90,000
2,070,000
Contribution Margin
9,000,000
Fixed Expenses
Manufacturing Overhead
250,000
Selling and admin
100,.000
350,000
Net Income
550,000
Break even Analysis
0+350,000/(900,000/9,000)
0+350,000/100=3500 units
(150+60+40)/9,000=2,340,000
2,970,000-2,340,000=70
0+350,000/70=5000 units
Part II
Manufacturing Decision
Selling Price
250 ea unit
210 ea unit
Sales 1100 units
275,000
231,000
Variable Expenses
Direct Material at 110 per unit
121,000
121,000
Direct Labor at 60 per unit
66,000
66,000
Variable Overhead at 40 per unit
44,000
231,000
44,000
231,000
Contribution Margin
44,000
0
With the selling price at 250 per unit, the contribution margin is 40 per unit (44,000/1100). If the selling price is 210 per unit, the contribution margin is zero. The decision needs to be declined because of ensuring that proper equipment is available, ensuring the needed skill of labor, allocated fixed overhead, after sales-service, and the risk involved of defective product (Brewer, 2010). Other variable costs, such as equipment maintenance, fluctuating material costs, as well as others, can change the contribution margin. With a narrow contribution margin, there is the risk of completing the order and just breaking even without benefit to the company, or even having a loss in the end. In manufacturing, there is also the consideration of environmental costs, such as pollution.
Bibliography
Accounting for Management. (2012). Retrieved from Income Comparison for variable and absorption costing: http://accounting4management.com/incom...mparison_of_variable_and_absorption_costing.htm
Brewer, P.C. (2010). Introduction to Managerial Accounting. New York, NY: McGraw Hill.
There is no discussion of physical property rights in the annual report, and no insight is provided into physical property rights in a search of online resources either. Corporate Social Responsibility Efforts KBR generally has a poor CSR record. In recent years, the company has become embroiled in a number of scandals relating to its operations in the Middle East in particular. In addition to accusations of shoddy workmanship causing deaths,