Refer to information about Flores Company in Problem 19-2B. In the company’s planning docu...

Refer to information about Flores Company in Problem 19-2B. In the company’s planning documents, Roberto Flores, the company president, reports that the company’s break-even volume in unit sales is 55,715 units. This break-even point is computed as follows.

Total fixed cost consists of $480,000 in fixed production cost and $300,000 in fixed selling and administrative expenses. The contribution margin per unit of $14 is computed by deducting the $21 variable cost per unit (which consists of $18 in variable production cost and $3 in variable selling and administrative cost) from the $35 sales price per unit. In 2010, it sold 55,000 units, which was below break-even, and Roberto Flores was concerned that the company’s income statement would show a net loss. To his surprise, the company’s 2010 income statement revealed a net income of $30,000 as shown in Problem 19-2B.

Required

Prepare a one-half-page memorandum to the president explaining how the company could report net income when it sold less than its break-even volume in units.