Question

Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 12 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 480,000 Fixed selling and administrative expenses $ 360,000 During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $57 per unit. Required:

1. Compute the company’s break-even point in units sold.

2. Assume the company uses variable costing: a.Compute the unit product cost for year 1, year 2, and year 3. b. Prepare an income statement for year 1, year 2, and year 3.

3. Assume the company uses absorption costing: a. Compute the unit product cost for year 1, year 2, and year 3. (Round your intermediate and final answers to 2 decimal places.)

b. Prepare an income statement for year 1, year 2, and year 3. (Round your intermediate calculations to 2 decimal places.)

Answer 1

Computation of BEP Unit

Contribution per Unit = $57-$25-$12-$4-$2=14

Fixed Cost ( 480000+360000)= $840000

BEP = 840000/14= 60000 Unit

The Variable Costing Unit Product Cost
		Year-1	Year-2	Year-3
Production Qty		60000	75000	40000
Variable Production Cost (25+12+4)		$41.00	$41.00	$41.00
Unit Product cost		$41.00	$41.00	$41.00

The Variable Costing Income Statement
	Year-1	Year-2	Year-3
No. of Unit Sold	60000	50000	65000
Sales	$34,20,000	$28,50,000	$37,05,000
Less: Variable cost
variable cost of goods sold @41	$24,60,000.00	$20,50,000.00	$26,65,000.00
Variable selling expense @2	$1,20,000.00	$1,00,000.00	$1,30,000.00
Contribution margin	$8,40,000.00	$7,00,000.00	$9,10,000.00
Fixed expense:
Fixed Manufacturing overheads	$4,80,000	$4,80,000	$4,80,000
Fixed selling expense	$3,60,000.00	$3,60,000.00	$3,60,000.00
Net operating Income	$0.00	-$1,40,000.00	$70,000.00

The Absorption Costing Unit Product Cost
		Year-1	Year-2	Year-3
Production Qty		60000	75000	40000
Variable Production Cost (25+12+4)		$41.00	$41.00	$41.00
Fixed Production Cost (480000/60000, 75000, 40000)		$8.00	$6.40	$12.00
Unit Product cost		$49.00	$47.40	$53.00

The Absorption Costing Income Statement
	Year-1	Year-2	Year-3
No. of Unit Sold	60000	50000	65000
Sales @ $57	$34,20,000	$28,50,000	$37,05,000
Less: Cost of Goods sold @$49, 47.40, 53	$29,40,000.00	$23,70,000.00	$34,45,000.00
Gross Margin	$4,80,000.00	$4,80,000.00	$2,60,000.00
Less: Selling and distribution expense ($2* unit sold +$360000)	4,80,000	4,60,000	4,90,000
Net operating income	$0.00	$20,000.00	-$2,30,000.00