Tammy Cat Tree Co. (TCTC) builds luxury cat trees and sells them through the Internet to cat owners who want to provide their cats with a more natural environment. At the start of 2013, TCTC carried no inventory. During the year, it produced 1,000 cat trees and sold 800 cat trees for $300 each. Fixed production costs were $100,000 and variable production costs were $75 per cat tree. Fixed advertising, website, and other general and administrative expenses were $50,000 and variable shipping costs were $25 per tree.

REQUIRED

1. Prepare an income statement assuming TCTC uses:

a. Variable costing.

b. Absorption costing.

2. Compute the breakeven point in units assuming TCTC uses:

a. Variable costing.

b. Absorption costing.

3. Due to recent changes in local conservation laws, the price of the wood used in the cat trees is expected to increase by $25 for each tree. What effect would this have on the breakeven points calculated above?

4. Using the original data in the problem and the breakeven/target income formulas, show that it would be necessary to sell 800 cat trees to earn the income calculated in requirements la and lb above.