Question

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:

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.

Prepare an income statement for Year 1, Year 2, and Year 3. Assume the company uses variable costing.

Haas Company Variable Costing Income Statement Year 1 Year 2 Year 3 Sales $3,420,000 $2,850,000 $3,705,000 Variable expenses: Variable cost of goods sold 3,000,000 2,500,000 3,250,000 Variable selling and administrative 180,000 150,000 195,000 Total variable expenses 3,180,000 2,650,000 3,445,000 Contribution margin 240,000 200,000 260,000 Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses 0 0 0 Net operating income (loss) $240,000 $200,000 $260,000

Answer 1

1)	Break even unit sales = total fixed cost/contribution margin
	total fixed cost
	fixed manufacturing overhead				150,000
	fixed selling & administrative				90,000
	total fixed cost				240,000
	contribution margin per unit
	Selling price per unit				57
	less variable cost
	Direct mterials			25
	direct labor			17
	VMOH			8
	Variable selling & adm expense			3	53
	contribution margin per unit				4
	Break even unit sales = 240,000/4
			60000	units	answer
2a)	unit product cost under variable costing
	Direct mterials			25
	direct labor			17
	VMOH			8
	total unit product cost			50
				year 1	year 2	year 3
	unit product cost			50	50	50
b)	Variable costing income statement
	units sold				60,000	50,000	65,000
					year 1	year 2	year 3
	sales				3420000	2850000	3705000
	variable expenses
	variable cost of goods sold				3000000	2500000	3250000
	variable selling & adm expense				180000	150000	195000
	total variable expense				3180000	2650000	3445000
	contribution margin				240000	200000	260000
	fixed xpenses:
	fixed manufacturing overhead				150,000	150,000	150,000
	fixed selling & adm expnes				90,000	90,000	90,000
	total fixed expense				240,000	240,000	240,000
	net income /loss				0	-40,000	20,000
3a)	Absorptiong costing
				year 1	year 2	year 3
	Direct mterials			25	25	25
	direct labor			17	17	17
	VMOH			8	8	8
	FMOH	(150000/units prod)		2.5	2	3.75
	total unit product cost			52.5	52	53.75
				year 1	year 2	year 3
	unit product cost			52.5	52	53.75
3b)	income statement
				year 1	year 2	year 3
	sales			3420000	2850000	3705000
	cost of goods sold			3150000	2600000	3450000
	gross margin			270000	250000	255000
	Selling and adm exp			270,000	240,000	285,000
	net income/loss			0	10,000	-30,000
	cost of goods sold for year 3 = 25000*52 + 40000*53.75
	year 2 = 50000*52
			year 1 = 60000*52.5