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Tammy Cat Tree Co. (TCTC) builds luxury cat trees and sells them through the internet...

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Accounting

Tammy Cat Tree Co. (TCTC) builds luxury cat trees and sells them through the internet to cat owners who want to provide their cats with a more natural environment. At the start of the year, TCTC carried no inventory. During the year, it produced 1,000 cat trees and sold 800 cat trees for $300 each. Fixed production costs were $100,000, and variable production costs were $75 per cat tree. Fixed advertising, website, and other general and administrative expenses were $50,000, and variable shipping costs were $25 per tree.

Required:

  1. Prepare an operating statement of comprehensive income assuming TCTC uses
    1. Variable costing
    2. Absorption costing
  2. Compute the breakeven point in units assuming TCTC uses
    1. Variable costing
    2. Absorption costing
  3. Due to recent changes in local conservation laws, the price of the wood used in the cat trees is expected to increase by $25 for each tree. What effect would this have on the breakeven points calculated above?
  4. Using the original data in the problem and the breakeven/target income formulas, show that it would be necessary to sell 800 cat trees to earn the income calculated in requirements 1a and 1b above.

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