Comprehensive Review Problem: Break-even point; absorption and variable cost analysis similar to Self-Study Problem 1:

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.

Required:

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. (Hint: Dont forget to compute the volume variance.)

b.Variable costing.

*MAKE SURE to add a beginning inventory for both methods.