Breakeven under absorption costing: Consider the following data with respect to

Question

Breakeven under absorption costing:

Consider the following data with respect to the one product manufactured by XYZ Co.:

Sales price= $40 per unit

Variable production costs= $12 per unit

Variable costs non-production = $4 per unit

Fixed production costs= $480,000

Fixed costs non-production = $240,000

60,000 units planned production (normal quantity)

Required (assume absorption costing)

1. Calculate the breakeven volume in units if production= 0, i.e. Sales= ?

2. Calculate the breakeven volume in units if sales=0, i.e., Production=?

Explanation / Answer

Breakevent volume in units if production is 0 = Fixed costs / contribution per unit Fixed cost = 240000 Contribution per unit = Sales price per unit - Variable costs per unit (non production) Contribution per unit = 40-4 = 36 Breakevent volume in units = 240,000 / 36 = 6667 units Breakevent volume in units if sales is 0 = Fixed costs / contribution per unit Fixed cost = 480000 Contribution per unit = Sales price per unit - Variable costs per unit Contribution per unit = 40-12 = 28 Breakevent volume in units = 480,000 / 28 = 17143 units

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