Schatzberg Company’s budget for its first year of operations follows.
Fixed manufacturing cost .............. $150,000
Fixed selling and administrative costs .......... 200,000
Variable manufacturing cost per unit ......... 10
Variable selling and administrative cost per unit ..... 5
Selling price per unit ................. 25
The company’s accountant estimated that normal capacity will be 50,000 units and used that volume to allocate overhead. During its first year, the company actually produced 40,000 units and sold 35,000.

REQUIRED
A. Calculate the breakeven point in units.
B. Develop an income statement using the absorption costing method, assigning the entire volume variance to COGS.
C. Develop an income statement using the absorption costing method, prorating the volume variance between inventory and COGS.
D. Assume the company needs to prepare financial statements that comply with U.S. GAAP. Which income statement (Part B or C) should the accountant prepare? Explain.
E. Develop an income statement using the variable costing method.