Question
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
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 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started