The Maxwell Corporation manufacturers and sells a single product. Cost date for the product is as follows: Item/Costs

Variable cost per unit

Direct materials $ 6

Direct labor 12

Variable factory overhead 4

Variable selling & administrative 3

Total Variable cost per unit $ 25

Fixed cost per month

Fixed manufacturing overhead $240,000

Fixed selling and administrative 180,000

Total Fixed cost per month $420,000 The product sells for $40 per unit. Production and sales data for May and June are as follows: Month

Units Produced/ Units Sold

May 30,000 /26,000

June 30,000 /34,000 Income statements for the months of May and June prepared by the accounting department using absorption are as follows: Item May/June

Sales $1,040,000/$1,360,000

Cost of goods sold 780,000 /1,020,000

Gross margin $ 260,000/$ 340,000

Selling & administrative expenses 258,000 / 282,000

Net Operating Income $ 2,000 /$ 58,000

Required: 1. Determine the unit product cost under: (a) Absorption Costing (b) Variable costing. Continued to page 2 2. Prepare contribution format variable costing income statements for May and June.

3. Reconcile the variable costing and absorption net operating incomes.

4. The Companys Accounting Department has determined the break-even point to be 28,000 units as follows: Fixed cost per month = $420,000 = 28,000 units Unit contribution margin $15 per unit After receiving this 28,000 unit break-even number, Maxwells President stated:something is wrong somewhere, Our Chief Accountant says that our break-even point is 28,000 units. However, in May we sold only 26,000 units and the May income statement indicates we made a profit of $2000. Which figure do we believe? Prepare a brief explanation of what happened on the May income statement.