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During the first year of operations Nickelson produced 60,000 units and sold 60,000 units. During its second year of operations it produced 75,000 units and sold 50,000 units. In its third year, Nickelson produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $56 per unit.
Required:
1. Compute the company’s break-even point in units sold.
2. Assume the company uses variable costing:
a. Compute the unit product cost per year 1, 2, and 3.
b. Prepare an income statement for year 1, 2, and 3.
3. Assume the company uses absorption costing:
a. Compute the unit product cost for year 1, 2, and 3.
b. Prepare an income statement for year 1, 2, and 3.
4. Compare the net operating income figures that you computed in requirements 2 and 3 to the break-even point that you computed in requirement 1. Which net operating income figures seem counterintuitive? Why?
Problem 5-21 Prepare and Reconcile Variable Costing Statements
Linden Company manufactures and sells a single product. Cost data for the product follows:
Variable Cost Per Unit:
Direct materials
$6
Direct Labor
12
Variable factory overhead
4
Variable selling and administrative
3
Total variable costs per unit
$25
Fixed costs per month:
Fixed manufacturing overhead
$240,000
Fixed selling and administrative
180,000
Total fixed cost per month
$420,000
The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows:
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