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

	2019	2020
Sales	44,000 tons	44,000 tons
Production	88,000 tons	0 tons
Selling price	$74 per ton	$74 per ton
Costs (all fixed):
Manufacturing	$2,200,000	$2,200,000
Operating (nonmanufacturing)	$94,000	$94,000

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.

How to calculate the breakeven point under Absorption Costing?

Cost of Good Sold:						Cost per Unit under Absorption Costing
Beginning Inventory	0	1,050,000.00	-			Fixed	$2,100,000
Allocated fixed manufacturing costs G	2,100,000.00	-	2,100,000.00			Production in tons	60000
Deduct Ending Inventory (-)	1,050,000.00	-	-			Cost per Ton	$35
Adjustment for Production - Volume Variance	0	2,100,000.00	2,100,000.00	UU
Total Cost of Goods Sold	1,050,000.00	3,150,000.00	4,200,000.00
Gross Margin	1,590,000.00	(510,000.00)	1,080,000.00
Operating Costs	100,000.00	100,000.00	200,000.00
Operating income (loss)	1,490,000.00	(610,000.00)	880,000.00
REQ 2
Breakeven point under variable costing
2,200,000.00	88	25,000.00	Units
Breakeven Point under Absorption Costing