(Solution) - Refer to information about Powell Company in Problem 6 2A In -(2025 Original AI-Free Solution)

Paper Details

Refer to information about Powell Company in Problem 6-2A. In the company?s planning documents, Kyra Powell, the company?s president, reports that the break-even volume (in units) for the company is 21,739 units. This break-even point is computed as follows.

Total fixed cost consists of $300,000 in fixed production cost and $240,000 in fixed selling and administrative expenses. The contribution margin per unit of $22.50 is computed by deducting the $23.50 variable cost per unit (which consists of $21 in variable production cost and $2.50 in variable selling and administrative cost) from the $46 sales price per unit. In 2008, the company sold 20,000 units, which was below break-even, and Kyra was concerned that the company?s income statement would show a net loss. To her surprise, the company?s 2008 income statement revealed a net income of $10,000 as shown in Problem 6-2A.

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 inunits.