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Comprehensive Review Problem: Break-even point; absorption and variable cost analysis Si...

Comprehensive Review Problem: Break-even point; absorption and variable cost analysis Similar to Self-Study Problem 1

Musketeer Manufacturing Co. has a maximum productive capacity of 210,000 units per year. Normal capacity is 180,000 units per year. Standard variable manufacturing costs are $10 per unit. Fixed factory overhead is $360,000 per year. Variable selling expense is $5 per unit, and fixed selling expense is $252,000 per year. The unit sales price is $20.

The operating results for the year are as follows: sales, 150,000 units; production, 160,000 units; beginning inventory, 10,000 units. All variances are written off as additions to (or deductions from) the standard cost of sales.

Required:

1. What is the break-even point expressed in dollar sales?

2. How many units must be sold to earn a net operating income of $100,000 per year?

3. Prepare a formal income statement for the year ended December 31, 2013, under the following:

a. Absorption costing. (Hint: Don’t forget to compute the volume variance.)

b. Variable costing.

Reference:

Break-even Point; Absorption and Variable Costing

Alamo Products Inc.

Alamo Products Inc. has a maximum productive capacity of 100,000 units per year. Normal capacity is 90,000 units per year. Standard variable manufacturing costs are $20 per unit. Fixed factory overhead is $450,000 per year. Variable selling expense is $10 per unit, and fixed selling expense is $300,000 per year. The unit sales price is $50.

The operating results for the year are as follows: sales, 80,000 units; production, 85,000 units; and beginning inventory, 5,000 units. All variances are written off as additions to (or deductions from) the standard cost of goods sold.

Required:

1. What is the break-even point expressed in dollar sales?

2. How many units must be sold to earn a net income of $50,000 per year?

3. Prepare a formal income statement for the year ended December 31, 2013, under the following:

a. Absorption costing. (Hint: Don’t forget to compute the volume variance. You may want to review the discussion of this variance in Chapter 8.)

b. Variable costing.

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