Variable and absorption costing and breakeven points Mega-Air, Inc., manufactures a specialized snowboard made for the advanced snowboarder. Mega-Air began 2011 with an inventory of 240 snowboards. During the year, it produced 900 boards and sold 995 for $750 each. Fixed production costs were $280,000 and variable production costs were $335 per unit. Fixed advertising, marketing, and other general and administrative expenses were $112,000 and variable shipping costs were $15 per board. Assume that the cost of each unit in beginning inventory is equal to 2011 inventory cost.

Required

1. Prepare an income statement assuming Mega-Air uses variable costing.

2. Prepare an income statement assuming Mega-Air uses absorption costing. Mega-Air uses a denominator level of 1,000 units. Production-volume variances are written off to cost of goods sold.

3. Compute the breakeven point in units sold assuming Mega-Air uses the following:

a. Variable costing

b. Absorption costing (Production = 900 boards)

4. Provide proof of your preceding breakeven calculations.

5. Assume that $20,000 of fixed administrative costs were reclassified as fixed production costs. Would this change affect breakeven point using variable costing? What if absorption costing were used? Explain.

6. The company that supplies Mega-Air with its specialized impact-resistant material has announced a price increase of $25 for each board. What effect would this have on the breakeven points previously calculated?