Case:

Voltron Company expects to produce 190,000 units in 2021. The company uses a predetermined overhead rate for fixed overhead based on 210,000 units, which is normal capacity. Over-absorbed or under-absorbed overhead is shown separately in the income statement. The selling price is P320 per unit. At the expected level of production, Voltron expects the following costs:

Variable production costs P26,600,000

Fixed production costs 12,600,000

Fixed operating costs 8,680,000

In addition, there are variable operating costs of P40 per unit. The company had no inventory at the end of 2020.

Required:

1. Determine the break-even point assuming that variable costing is used.

2. Determine the number of units that must be sold to break even given that production will be 190,000 units using full costing.

3. Would your answer to no. 2 be different if the company had a beginning inventory of 10,000 units costed at the same per unit amount that the company will use in 2021? Explain why or why not, with computations.

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