Mega- Air inc, manufactures a specialized snowboard made for the advanced snowbo
ID: 2472866 • Letter: M
Question
Mega- Air inc, manufactures a specialized snowboard made for the advanced snowboarder. Mega-Air began 2011 with an inventory of 240 snow-boards. During the year, it produced 900 boards and sold 995 for $750 each. Fixed production costs were $280,000 and vairbale production costs were $335 per unit. Fixed advertising, marketing, and other general and administrative expenses were $112,000 and variable shipping costs were $15 per board. Assume that the cost of each unit in beginning inventory is equal to 2011 inventory costs.
Required:
1. Prepare an income statement assuing Mega-air uses variable costing.
2. Prepare an income statement assuming Mega-air uses absorption costing. Mega-air uses denominator level of 1,000 units. Production- volume variances are written off to cost of goods sold.
3. Compute the breakeven point in units sold assuming Mega-air uses the following:
a. variable costing
b. absorpton costing (production= 900 boards)
4. provide proof of your preceding breakeven calculations
Explanation / Answer
Given all the solutions together
Variable costing Per unit Sales $ 746,250 Less Variable cost for good sold Beginning Inventory $ 80,400 Valuable cost of goods manufactured $ 301,500 Variable cost of goods available for sale $ 381,900 Closing Inventory $ 48,575 $ 333,325 Gross contribution margin $ 412,925 $ 415.00 Variable shipping cost $ 14,925 $ 398,000 Less period cost Marketing and administration $ 112,000 Manufacturing $ 280,000 $ 392,000 Net operating income $ 6,000 Break even point Break even point= Total fixed expenses/ contribution margin per unit Break even point= $392,000/ 415 Break even point= 945 units. Contribution per unit=412925/995 Absorption costing Sales $ 746,250 Less Cost of Goods Sold Beginning Inventory (240*646) $ 155,040 Cost of Goods manufactured (900*646) $ 581,400 Cost of Goods available for sale $ 736,440 Closing Inventory (145*646) $ 93,670 Cost of Goods sold $ 642,770 Gross Profit $ 103,480 Less marketing and administation expenses Variable expenses (15*990) $ 14,925 Fixed Expenses $ 112,000 $ 126,925 Net operating loss $ (23,445) Break even point Break even point= Total fixed expenses/ contribution margin per unit Break even point= $392,000/ 385 Break even point= 1018 units Contribution margin=sales-variable cost Contribution margin=750-365=385 Opening 240 Variable 335 Produced 900 Fixed 311 Available 1140 Total 646 Sales 995 Closing 145 Total variable cost=350+15=365. Sale price=750 Cotribution margin 385