Question

In: Accounting

Haas Company manufactures and sells one product. The following information pertains to each of the company’s...

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 unit sales. 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. b. Prepare an income statement for Year 1, Year 2, and Year 3.

Solutions

Expert Solution

1)
Selling price per unit $        57.00
Less: Variable Costs
Direct Materials $   25.00
Direct Labor $   12.00
Variable Manu. OH $      4.00
Variabe S&A OH $      2.00
Total Variable Costs $        43.00
Contribution Margin $        14.00
Break even unit sales = Fixed Costs / Cont. Margin per unit
= ($ 480000 + $ 360000) / $ 10
= 60000 units
2)
a) Computation of Unit product cost
Particulars Year 1 Year 2 Year 3
Direct Materials $   25.00 $   25.00 $   25.00
Direct Labor $   12.00 $   12.00 $   12.00
Variable Manu. OH $      4.00 $      4.00 $      4.00
$   41.00 $   41.00 $   41.00
b) Variable Costing Income Statement
Particulars Year 1 Workings Year 2 Workings Year 3 Workings
Sales $ 3,420,000.00 (60000 x $ 57) $ 2,850,000.00 (50000 x $ 57) $ 3,705,000.00 (65000 x $ 57)
Less: Variable Costs
Direct Materials $ 1,500,000.00 (60000 x $ 25) $ 1,250,000.00 (50000 x $ 25) $ 1,625,000.00 (65000 x $ 25)
Direct Labor $    720,000.00 (60000 x $ 12) $    600,000.00 (50000 x $ 12) $    780,000.00 (65000 x $ 12)
Variable Manu. OH $    240,000.00 (60000 x $ 4) $    200,000.00 (50000 x $ 4) $    260,000.00 (65000 x $ 4)
Variable S&A OH $    120,000.00 (60000 x $ 2) $    100,000.00 (50000 x $ 2) $    130,000.00 (65000 x $ 2)
Total Variable Costs $ 2,580,000.00 $ 2,150,000.00 $ 2,795,000.00
Contribution Margin $    840,000.00 $    700,000.00 $    910,000.00
Less: Fixed Costs
Fixed Manu. OH $    480,000.00 $    480,000.00 $    480,000.00
Fixed S&A OH $    360,000.00 $    360,000.00 $    360,000.00
Total Fixed Costs $    840,000.00 $    840,000.00 $    840,000.00
Operating Income $                     -   $   (140,000.00) $      70,000.00
3)
a) Computation of Unit product cost
Particulars Year 1 Workings Year 2 Workings Year 3 Workings
Direct Materials $   25.00 $   25.00 $   25.00
Direct Labor $   12.00 $   12.00 $   12.00
Variable Manu. OH $      4.00 $      4.00 $      4.00
Fixed Manu. OH $      8.00 ($ 480000 / 60000) $      6.40 ($ 480000 / 75000) $   12.00 ($ 480000 / 40000)
$   49.00 $   47.40 $   53.00
b) Absorbtion Costing Income Statement
Particulars Year 1 Workings Year 2 Workings Year 3 Workings
Sales $ 3,420,000.00 (60000 x $ 57) $ 2,850,000.00 (50000 x $ 57) $ 3,705,000.00 (65000 x $ 57)
Less: Cost of Goods sold $ 2,940,000.00 (60000 x $ 49) $ 2,370,000.00 (50000 x $ 64.6) $ 3,305,000.00 (W.N.1)
Gross Margin $    480,000.00 $    480,000.00 $    400,000.00
Less: Selling and Adm. Expenses $    480,000.00 $    460,000.00 $    490,000.00
Operating Income $                     -   $      20,000.00 $     (90,000.00)
W.N.1
Cost of Goods sold = (25000 units x $ 47.4) + (40000 x $ 53)
= $ 3,305,000.00

Is this okay?


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