9-26 Alternative 2. Use 10,000 units as a denominator; fixed manufacturing overhead per unit is $280,000 ÷10,000 = $28.
2. costingableunder varipointBreakeven = per tonmargin on ContributicostsFixed= $30$320,000= 10,667 (rounded) tons per year or 21,334 for two years. If the company could sell 667 more tons per year at $30 each, it could get the extra $20,000 contribution margin needed to break even. Most students will say that the breakeven point is 10,667 tons per year under both absorption costing and variable costing. The logical question to ask a student who answers 10,667 tons for variable costing is: “What operating income do you show for 2012 under absorption costing?” If a student answers $120,000 (alternative 1 above), or $260,000 (alternative 2 above), ask: “But you say your breakeven point is 10,667 tons. How can you show an operating income on only 10,000 tons sold during 2012?”The answer to the above dilemma lies in the fact that operating income is affected by both sales and production under absorption costing. Given that sales would be 10,000 tons in 2012, solve for the production level that will provide a breakeven level of zero operating income. Using the formula in the chapter, sales of 10,000 units, and a fixed manufacturing overhead rate of $14 (based on $280,000 ÷ 20,000 units denominator level = $14):