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Variable and Absorption Costing with high-low cost estimation and CVP Analysis Including Taxes
Presented are the Charger Company's functional income statements for January and February of 2012.

January February
Production and sales 40,000 50,000

Sales Revenue $1,000,000 $1,250,000
Cost of goods manufactured and sold (500,000) (625,000)

Gross profit 475,000 625,000
General and adminstrative expenses 235,000 235,000

Net income before taxes 240,000 390,000
Income taxes at 0.40 (96,000) (156,000)

Net income after taxes $ 144,000 $ 234,000

a. Using the high-low method, develop a cost estimating equation for total monthly manufacturing costs.
b. Determine Charger Company's monthly break-even point.
c. Determine the unit sales required to earn a monthly after-tax income of $ 150,000.
d. Prepare a January 2012 contribution income statement using variable costing.
e. If the January 2012 net income amounts differ using absorption and variable costing, describe why. If they are identical, describe why.


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