Answered: P10-15R Comprehensive Review Problem:…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.16E

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P10-15R Comprehensive Review Problem: Break-Even Point; Absorption and Variable Cost Analysis LO1, LO4 Similar to Self-Study Problem 1 Shenandoah Manufacturing Company has a maximum productive capacity of 210,000 units per year. Normal capacity is 180,000 units per year. Standard variable manufacturing costs are $10 per unit. Fixed factory overhead is $360,000 per year. Variable selling expense is $5 per unit, and fixed selling expense is $252,000 per year. The unit sales price is $20. The operating results for the year are as follows: sales, 150,000 units; production, 160,000 units; beginning inventory, 10,000 units. All variances are written off as additions to (or deductions from) the standard cost of sales. Required: What is the break-even point expressed in dollar sales? How many units must be sold to earn a net operating income of $100,000 per year? (Ignore income taxes.) Prepare a formal income statement for the year ended December 31, 2016, under the following: Absorption costing. (Hint: Don’t forget to compute the over- or underapplied overhead.) Variable costing.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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