Yellowstone Company began operations on January 1 to produce a single product. It used an absorption...

Yellowstone Company began operations on January 1 to produce a single product. It used an absorption costing system with a planned production volume of 108,000 units. During its first year of operations, the planned production volume was achieved, and there were no fixed selling or administrative expenses. Inventory on December 31 was 10,800 units, and operating income for the year was $291,600.

Required:
1. If Yellowstone Company had used variable costing, its operating income would have been $237,600. Compute the break-even point in units under variable costing.

Solutions

Expert Solution

	Variable Costing operating income	$237,600
	Add: Fixed cost element in closing inventory	$54,000	(291600-237600)
	Absorption costing opearting income	$291,600

	Total Ending inventory units	10,800
	Fixed cost per unit in ending inventory	$5	(54000/10800)


	Planned production	108000 units
	Total fixed Cost =	108000*5
	Total fixed Cost =	$540,000


	Fixed Cost	$540,000
Add	Operating income under variable costing	$237,600
	Contribution margin	$777,600
	Total units sold	97,200	(108000-10800)
	contribution margin per unit	$8	(777600/97200)

	Breakeven point in units =	Fixed Cost/contribution margin per unit
	Breakeven point in units =	540000/8
	Breakeven point in units =	67,500

ekkarill92 answered 1 year ago

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