Problem: 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.
Q1. What is the break-even point expressed in dollar sales?
Q2. How many units must be sold to earn a net operating income of $100,000 per year?
Q3. Prepare a formal income statement for the year ended December 31, 2011 under the following:
a. Absorption costing.
b. Variable costing.