Chapter 9, Problem 9.40P

Variable and absorption costing and breakeven points. LLAP Company manufactures a specialized hoverboard. LLAP began 2017 with an inventory of 240 hoverboards. During the year, it produced 1,200 boards and sold 1,300 for $800 each. Fixed production costs were $319,000, and variable production costs were $375 per unit. Fixed advertising, marketing, and other general and administrative expenses were $150,000, and variable shipping costs were $20 per board. Assume that the cost of each unit in beginning inventory is equal to 2017 inventory cost.

1. 1. Prepare an income statement assuming LLAP uses variable costing.

Required

1. 2. Prepare an income statement assuming LLAP uses absorption costing. LLAP uses a denominator level of 1,100 units. Production-volume variances are written off to cost of goods sold.
2. 3. Compute the breakeven point in units sold assuming LLAP uses the following:
   1. a. Variable costing
   2. b. Absorption costing (Production = 1, 200 boards)
3. 4. Provide proof of your preceding breakeven calculations.
4. 5. Assume that $44,000 of fixed administrative costs were reclassified as fixed production costs. Would this reclassification affect the breakeven point using variable costing? What if absorption costing were used? Explain.
5. 6. The company that supplies LLAP with its specialized impact-resistant material has announced a price increase of $20 for each board. What effect would this have on the breakeven points previously calculated in requirement 3?