LO.1 & LO.2 (Variable costing; ethics) In its first year of operations, Utah Utility Trailers incurred the following costs: Variable production cost $2,800 per unit Variable selling and administrative cost $200 per unit Fixed production cost $200,000 Fixed selling and administrative cost $80,000 For the year, the company reported the following results: Sales ($5,000 per unit) $ 500,000 Cost of goods sold (400,000) Gross margin $ 100,000 Selling and administrative cost (100,000) Operating income $ 0
a. Using the contribution margin ratio approach, compute the break-even point for this company.
b. How many units did the firm produce in its first year of operations?
c. Provide an explanation that reconciles your result in (a) to the income statement provided above.
d. Prepare a variable costing income statement for sales of 100 units. e. Assume that Utah Utility Trailers is in need of a bank loan. Would it be unethical to use the income statement above, rather than the income statement compiled in (d), to present to the loan officer? Explain.