Refer to information about Azule Company in Problem 19-1B. In the company's planning documents, Roberta Azule, the company president, reports that the company's break-even volume in unit sales is 55,715 units. This break-even point is computed as follows.
Break-even volume = Total fixed cost / Contribution margin per unit = $780,000/$14 = 55,715 units(rounded)
Total fixed cost consists of $480,000 in fixed production cost and $300,000 in fixed selling and administrative expenses. The Contribution margin per unit of $14 is computed by deducting the $21 variable cost per unit (which consists of $18 in variable production cost and $3 in variable selling and administrative cost) from the $35 sales price per unit. In 2012, it sold 55,000 units, which was below break-even, and Roberta was concerned that the company's income statement would show a net loss. To her surprise, the company's 2012 income statement revealed a net income of $30,000 as shown in Problem 19-1B.
Required
Prepare a one-half-page memorandum to the president explaining how the company could report net income when it sold less than its break-even volume in units.