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 $ 17 Variable manufacturing overhead $ 8 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 150,000 Fixed selling and administrative expenses $ 90,000 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. Calculation of Break even point
Amt.
A. Sales Price 57
B. Variable Manufacturing Cost (25+17+8) 50
C. Variable selling and administrative cost 3
D. Contribution per unit (A-B-C) 4
Total Fixed Cost
Fixed manufacturing overhead 150000
Fixed selling and administrative expenses 90000
E. Total 240000
Berak even point = (E/D) 60000 Units
2. Calculation of Unit Product Cost and Profit as per Variable Costing
(Amt $)
Year 1 Year 2 Year 3
Units Produced 60000 75000 40000
Units Sold 60000 50000 65000
A. Sales Price 57 57 57
B. Variable Manufacturing Cost (25+17+8) 50 50 50
C. Variable selling and administrative cost 3 3 3
D. Contribution per unit (A-B-C) 4 4 4
F. Total Contribution (Unis Sold * D) 240000 200000 260000
G. Fixed manufacturing overhead 150000 150000 150000
H. Fixed selling and administrative expenses 90000 90000 90000
I. Fixed Cost Per unit (H+G/Units Sold) 4.00 4.80 3.69
Unit Product cost
=B+C+I 57.00 57.80 56.69
Total Profit/(Loss) (F-G-H) 0 -40000 20000
3. Calculation of Unit Product Cost and Profit as per Absorption Costing
(Amt $)
Year 1 Year 2 Year 3
Opening Stock 0 0 25000
Units Produced 60000 75000 40000
Units Sold 60000 50000 65000
Closing Stock 0 25000 0
A. Sales Price 57 57 57
B. Variable Manufacturing Cost (25+17+8) 50 50 50
C. Variable selling and administrative cost 3 3 3
D. Contribution per unit (A-B-C) 4 4 4
F. Total Contribution (Unis Sold * D) 240000 200000 260000
G. Fixed manufacturing overhead 150000 150000 150000
H. Fixed selling and administrative expenses 90000 90000 90000
I. Fixed manufacturing Cost Per unit (G/Units Produced) 2.50 2.00 3.75
Opening Stock 0 0 1300000
Cost of production 3150000 3900000 2150000
Closing Stock (B+I)* Closing Stock units 0 1300000 0
J. Production Cost of Goods Sold 3150000 2600000 3450000
K. Selling & Admin Cost 270000 240000 285000
Unit Product cost (J+K/Units Sold) 57.00 56.80 57.46
Profit/ (Loss) 0.00 10000.00 -30000.00
(Sales price - Unit Product cost ) * Sales Units

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