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Mallory Manufacturing Company, breakeven, absorption costing

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Mallory Manufacturing Company 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.

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, 2011 under the following:
a. Absorption costing.
b. Variable costing.

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Solution Summary

Your tutorial is attached in Excel. Click in cells to see computations. The volume variance is computed and the breakeven, target profit, absorption income statement and variable costing income statement (contribution margin income statement) are presented for review.

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Your tutorial is attached in Excel. Click in cells to see computations. ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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