It is the end of2020.AllFixedCorporation began operations in January2019.The company is so named because it has no variable costs. All its costs are fixed; they do not vary with output.AllFixedCorp. is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations ofAllFixed

data Table:

The company uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold.

	2019	2020
Sales	50,000 tons	50,000 tons
Production	100,000 tons	0 tons
Selling price	$100 per ton	$100 per ton
Costs (all fixed):
Manufacturing	$4,800,000	$4,800,000
Operating (nonmanufacturing)	$106,000	$106,000

Management adopted the policy, effective January 1,

2020,

of producing only as much product as needed to fill sales orders. During

2020,

sales were the same as for

2019

and were filled entirely from inventory at the start of

2020.

Requirements:

Prepare income statements with one column for 2019, one column for 2020, and one column for the 2 years together using (a) variable costing and (b) absorption costing.
2.	What is the breakeven point under (a) variable costing and (b) absorption costing?
3.	What inventory costs would be carried in the balance sheet on December 31, 2019 and 2020, under each method?
4.	Assume that the performance of the top manager of AllFixed is evaluated and rewarded largely on the basis of reported operating income. Which costing method would the manager prefer? Why?

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