Question

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

Variable Cost per unit:
Manufacturing
Direct Materials	21
Direct Labor	13
Variable Manufacturing Overhead	8
Variable Selling and administrative	1
Fixed cost per year:
Fixed Manufacturing overhead:	$600,000
Fixed Selling and administrative expenses	$240,000 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.

1.

Compute the company’s break-even point in units sold. 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. (Round your intermediate and final answers to 2 decimal places.) b. Prepare an income statement for year 1, year 2, and year 3. (Round your intermediate calculations to 2 decimal places.)

Answer 1

1)	Break even unit sales = total fixed cost/contribution margin
	total fixed cost
	fixed manufacturing overhead				600,000
	fixed selling & administrative				240,000
	total fixed cost				840,000
	contribution margin per unit
	Selling price per unit				57
	less variable cost
	Direct mterials			21
	direct labor			13
	VMOH			8
	Variable selling & adm expense			1	43
	contribution margin per unit				14
	Break even unit sales = 840,000/14
			60000	units	answer
2a)	unit product cost under variable costing
	Direct mterials			21
	direct labor			13
	VMOH			8
	total unit product cost			42
				year 1	year 2	year 3
	unit product cost			42	42	42
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				2520000	2100000	2730000
	variable selling & adm expense				60000	50000	65000
	total variable expense				2580000	2150000	2795000
	contribution margin				840000	700000	910000
	fixed xpenses:
	fixed manufacturing overhead				600,000	600,000	600,000
	fixed selling & adm expnes				240,000	240,000	240,000
	total fixed expense				840,000	840,000	840,000
	net income /loss				0	-140,000	70,000
3a)	Absorptiong costing
				year 1	year 2	year 3
	Direct mterials			21	21	21
	direct labor			13	13	13
	VMOH			8	8	8
	FMOH	(600000/units prod)		10	8	15
	total unit product cost			52	50	57
				year 1	year 2	year 3
	unit product cost			52	50	57
3b)	income statement
				year 1	year 2	year 3
	sales			3420000	2850000	3705000
	cost of goods sold			3120000	2500000	3530000
	gross margin			300000	350000	175000
	Selling and adm exp			300,000	290,000	305,000
	net income/loss			0	60,000	-130,000
	cost of goods sold for year 3 = 25000*50+ 40000*57
	year 2 = 50000*50
			year 1 = 60000*52