Cincinnati Cylinder Company began operations on January 1 to produce pneumatic cylinders used in a variety of machines. It used an absorption costing system with a planned production volume of 100,000 units. During its first year of operations, 100,000 units were produced and there were no fixed selling or administrative expenses. Inventory on December 31 was 20,000 units, and operating income for the year was $480,000.
1. If Cincinnati Cylinder Company had used variable costing its operating income would have been $440,000. Compute the break-even point in units under variable costing.
2. Draw a profit-volume graph for Cincinnati Cylinder Company. (Use variable costing.)