Question

1). 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	$	26
Direct labor	$	18
Variable manufacturing overhead	$	6
Variable selling and administrative	$	3
Fixed costs per year:
Fixed manufacturing overhead	$	390,000
Fixed selling and administrative expenses	$	150,000

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 $62 per unit.

Required:

1a. Compute the company’s break-even point in unit sales.

1b. Assume the company uses variable costing:

1c. Compute the unit product cost for Year 1, Year 2, and Year 3.

1d. Prepare an income statement for Year 1, Year 2, and Year 3.

1e. Assume the company uses absorption costing:

1f. Compute the unit product cost for Year 1, Year 2, and Year 3.

1g. Prepare an income statement for Year 1, Year 2, and Year 3.

2.

Royal Lawncare Company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow:

	Product
	Weedban		Greengrow
Selling price per unit	$	11.00	$	37.00
Variable expenses per unit	$	3.10	$	11.00
Traceable fixed expenses per year	$	137,000	$	50,000

Common fixed expenses in the company total $112,000 annually. Last year the company produced and sold 37,000 units of Weedban and 15,000 units of Greengrow.

Required:

Prepare a contribution format income statement segmented by product lines.

3.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$	20
Direct labor	$	13
Variable manufacturing overhead	$	4
Variable selling and administrative	$	3
Fixed costs per year:
Fixed manufacturing overhead	$	320,000
Fixed selling and administrative expenses	$	70,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $83 per unit.

Required:

3a. Assume the company uses variable costing:

3b. Compute the unit product cost for Year 1 and Year 2.

3c. Prepare an income statement for Year 1 and Year 2.

3d. Assume the company uses absorption costing:

3e. Compute the unit product cost for Year 1 and Year 2.

3f. Prepare an income statement for Year 1 and Year 2.

3g. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Answer 1

1)Total Variable cost =Direct material +direct labor+ variable manufacturing overhead+ variable selling

                   = 26 + 18 + 6+ 3

                   = 53

Contribution per unit =selling price-variable cost

              = 62 -53

              = 9 per unit

Total Fixed cost = 390000+150000= 540000

Breakeven point = Fixed cost / Unit contribution margin

                = 540000 / 9

                = 60000units

1c)

	Year 1	2	3
direct material	26	26	26
Direct labor	18	18	18
Variable manufacturing overhead	6	6	6
Unit cost	50	50	50

1d)

Haas Company VARIABLE COSTING INCOME STATEMENT
	Year 1	Year 2	Year 3
sales revenue (selling price*units sold)	62*60000=3720000	62*50000=3100000	62*65000=4030000
less:Variable expense
Variable manufacturing cost	50*60000=3000000	50*50000=2500000	50*65000=3250000
Variable selling and administrative expenses	3*60000=180000	3*50000=150000	3*65000= 195000
Total variable cost	(3180000)	(2650000)	(3445000)
contribution margin	540000	450000	585000
Fixed cost
Fixed manufacturing overhead	390000	390000	390000
Fixed selling and administrative expenses	150000	150000	150000
Total fixed cost	(540000)	(540000)	(540000)
Net operating income	0	(90000)	45000

1f)

	Year 1	2	3
direct material	26	26	26
Direct labor	18	18	18
Variable manufacturing overhead	6	6	6
Fixed manufacturing overhead per unit (Total cost/units produced)	390000/60000= 6.5	390000/75000=5.2	390000/40000=9.75
Unit cost	56.5	55.2	59.75

1g)

Haas Company ABSORPTION COSTING INCOME STATEMENT
	Year 1	2	3
sales revenue	62*60000=3720000	62*50000=3100000	62*65000=4030000
less:cost of goods sold	56.5*60000= 3390000	55.2*50000= 2760000	[59.75*40000]current +[25000*55.2] year2 =3770000
Gross profit	330000	340000	260000
less:selling and administrative expense	[3*60000]+150000=330000	[3*50000]+150000= 300000	[3*65000]+150000= 345000
Net operating income	0	40000	- 85000