Question

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2]

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	$	29
Direct labor	$	21
Variable manufacturing overhead	$	5
Variable selling and administrative	$	1
Fixed costs per year:
Fixed manufacturing overhead	$	330,000
Fixed selling and administrative expenses	$	150,000

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 $64 per unit.

Required:

2. Assume the company uses variable costing:

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.

Answer 1

Solution 2b:

Income Statement - Variable Costing - Haas Company
Particulars	Per Unit	Year 1	Year 2	Year 3
Sales	$64.00	$3,840,000.00	$3,200,000.00	$4,160,000.00
Variable Costs:
Variable manufacturing Costs	$55.00	$3,300,000.00	$2,750,000.00	$3,575,000.00
Variable Selling and administrative expenses	$1.00	$60,000.00	$50,000.00	$65,000.00
Total Variable Costs	$56.00	$3,360,000.00	$2,800,000.00	$3,640,000.00
Contribution Margin	$8.00	$480,000.00	$400,000.00	$520,000.00
Fixed Expenses:
Fixed manufacturing overhead		$330,000.00	$330,000.00	$330,000.00
Fixed Selling & Administrative Expenses		$150,000.00	$150,000.00	$150,000.00
Net Operating Income		$0.00	-$80,000.00	$40,000.00