Question

Problem 6-18A Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2]

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		$24
Direct labor		$16
Variable manufacturing overhead		$4
Variable selling and administrative		$1
Fixed costs per year:
Fixed manufacturing overhead	$	220,000
Fixed selling and administrative expenses	$	140,000

  

During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company’s product is $54 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.)

         

Problem 6-18A Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2] 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 $24 Direct labor $16 Variable manufacturing overhead $4 Variable selling and administrative $1 Fixed costs per year: Fixed manufacturing overhead $ 220,000 Fixed selling and administrative expenses $ 140,000 During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company’s product is $54 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

1)	Break even unit sales = total fixed cost/contribution margin
	total fixed cost
	fixed manufacturing overhead				220,000
	fixed selling & administrative				140,000
	total fixed cost				360,000
	contribution margin per unit
	Selling price per unit				54
	less variable cost
	Direct mterials			24
	direct labor			16
	VMOH			4
	Variable selling & adm expense			1	45
	contribution margin per unit				9
	Break even unit sales = 360,000/9
			40000	units	answer
2a)	unit product cost under variable costing
	Direct mterials			24
	direct labor			16
	VMOH			4
	total unit product cost			44
				year 1	year 2	year 3
	unit product cost			44	44	44
b)	Variable costing income statement
	units sold				40,000	30,000	45,000
					year 1	year 2	year 3
	sales				2160000	1620000	2430000
	variable expenses
	variable cost of goods sold				1760000	1320000	1980000
	variable selling & adm expense				40000	30000	45000
	total variable expense				1800000	1350000	2025000
	contribution margin				360000	270000	405000
	fixed xpenses:
	fixed manufacturing overhead				220,000	220,000	220,000
	fixed selling & adm expnes				140,000	140,000	140,000
	total fixed expense				360,000	360,000	360,000
	net income /loss				0	-90,000	45,000
3a)	Absorptiong costing
				year 1	year 2	year 3
	Direct mterials			24	24	24
	direct labor			16	16	16
	VMOH			4	4	4
	FMOH	(220000/units prod)		5.5	4	11
	total unit product cost			49.5	48	55
				year 1	year 2	year 3
	unit product cost			49.5	48	55
3b)	income statement
				year 1	year 2	year 3
	sales			2160000	1620000	2430000
	cost of goods sold			1980000	1440000	2300000
	gross margin			180000	180000	130000
	Selling and adm exp			180,000	170,000	185,000
	net income/loss			0	10,000	-55,000
	cost of goods sold for year 3 = 25000*48+ 20000*55
	year 2 = 30000*48
			year 1 = 40000*49.5