In: Accounting
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.
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 |