LLAP Company manufactures a special-ized hoverboard. LLAP began 2017 with an inventory of 240 hoverboards. During the year, it produced 1,200 boards and sold 1,300 for $800 each. Fixed production costs were $319,000, and variable production costs were $375 per unit. Fixed advertising, marketing, and other general and administrative expenses were $150,000, and variable shipping costs were $20 per board. Assume that the cost of each unit in beginning inventory is equal to 2017 inventory cost.1. Prepare an income statement assuming LLAP uses variable costing.2. Prepare an income statement assuming LLAP uses absorption costing. LLAP uses a denominator level of 1,100 units. Production-volume variances are written off to cost of goods sold.3. Compute the breakeven point in units sold assuming LLAP uses the following:a. Variable costingb. Absorption costing (Production

Please see solution below

Explanation:

1. Prepare an income statement assuming LLAP uses variable costing

$

Sales

$800 × 1,300 = $1,040,000

Less cost of goods sold

Opening stock

($375 × 240)

$90,000

Add cost of goods manufactured

$450,000

Less closing stock

($374 × 140)

($52,500). ($487,500)

Gross profit. $562,500

Less periodic costs

Fixed production costs

($319,000)

Fixed advertising, marketing, admin

($150,000)

Shipping cost

($20 × 1,300)

($26,000)

Net income

$57,500

2. Prepare an income statement assuming LLAP uses absorption costing

$

Sales ($800 × 1,300)

$1,040,000

Less costs of goods sold

Opening stock ($665 × 240)

$159,600

Add costs of goods manufactured

769,000

Less closing stock ($665 × 140)

($93,100)

Add under - applied overhead

$29,000. $864,500

Gross profit. $175,500

Less periodic costs

Fixed advertising, marketing, admin

($150,000)

Shipping cost ($20 × 1,300)

($26,000)

Net loss. ($500)

3. Compute the Break even point in units sold assuming LLAP uses variable and absorption costing

a. Variable costing

BEP(units) = Fixed costs / Contribution per unit

= $319,000 + $150,000 / ($800 - $375 - $20)

= $469,000 / $405

= 1,159

b. Absorption costing(production = 1,200 boards)

BEP(units) = Fixed costs / Contribution per unit

= $319,000 + $150,000 / ($800 - $375 - $20)

= $469,000 / $385

= 1,159

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