Answer:
Please see solution below
Explanation:
1. Prepare an income statement assuming LLAP uses variable costing
$
Sales
$800 × 1,300 = $1,040,000
Less cost of goods sold
Opening stock
($375 × 240)
$90,000
Add cost of goods manufactured
$450,000
Less closing stock
($374 × 140)
($52,500). ($487,500)
Gross profit. $562,500
Less periodic costs
Fixed production costs
($319,000)
Fixed advertising, marketing, admin
($150,000)
Shipping cost
($20 × 1,300)
($26,000)
Net income
$57,500
2. Prepare an income statement assuming LLAP uses absorption costing
$
Sales ($800 × 1,300)
$1,040,000
Less costs of goods sold
Opening stock ($665 × 240)
$159,600
Add costs of goods manufactured
769,000
Less closing stock ($665 × 140)
($93,100)
Add under - applied overhead
$29,000. $864,500
Gross profit. $175,500
Less periodic costs
Fixed advertising, marketing, admin
($150,000)
Shipping cost ($20 × 1,300)
($26,000)
Net loss. ($500)
3. Compute the Break even point in units sold assuming LLAP uses variable and absorption costing
a. Variable costing
BEP(units) = Fixed costs / Contribution per unit
= $319,000 + $150,000 / ($800 - $375 - $20)
= $469,000 / $405
= 1,159
b. Absorption costing(production = 1,200 boards)
BEP(units) = Fixed costs / Contribution per unit
= $319,000 + $150,000 / ($800 - $375 - $20)
= $469,000 / $385
= 1,159
