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		$21
Direct labor		$13
Variable manufacturing overhead		$8
Variable selling and administrative		$1
Fixed costs 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 production cost for Year 1,2 and 3 b. Prepare an income statwmwnt for year 1,2 and 3 3.Assume the company uses absorption costing: A: Compute the Unit Product Cost for Year 1,2 and 3 B: Prepare an income statement for Year 1,2 and 3    a. Compute the unit product cost for year 1, year 2, and year 3. (Round your intermediate and final answers to 2 decimal places.) Could you please break it down throughly so I can understand it.

Answer 1

Req 1:
Selling price: $ 57
Variable cost: $21+13+8+1= $43
Contribution margin per unit: Selling price - variable cost = $ 57-43 = $ 14 per unit
Break even in units: Fixed cost / Contribution margin per unit
		(840000 / 14) = 60,000 units
Req 2:
Variable costing
The Variable costing Unit Product cost
				Year 1	Year 2	Year 3
Direct Material				21	21	21
Direct labour				13	13	13
Variable Manufacturing overheads				8	8	8
Variable costing unit prroduct cost				42	42	42
The Variable Costing Income Statement under FIFO
				YEAR 1		YEAR 2		Year 3
Sales					3,420,000		2,850,000		3,705,000
Less: Variable cost
variable cost of goods sold				2,520,000		2,100,000		2,730,000
Variable selling expense				60,000	2,580,000	50,000	2,150,000	65,000	2,795,000
Contribution margin					840,000		700,000		910,000
Fixed expense:
Fixed Manufacturing overheads					600,000		600,000		600,000
Fixed selling expense					240,000		240,000		240,000
Net operating Income					0		-140,000		70,000
Req 3:
Absorption Costing:
The Absorption Costing Unit Product Cost
				Year 1	Year 2	Year 3
Direct Material				21	21	21
Direct labour				13	13	13
Variable Manufacturing overheads				8	8	8
Fixed Manufacturing overheads				10.00	8.00	15
Absorption costing unit prroduct cost				52.00	50.00	57
Note:; Fixed manufacturing overheads per unit: Fixed manufacturing OH i.e. $ 600,000 / dNumber of units produced.
The Absorption Costing Income Statement Under FIFO
				Year 1	Year 2	Year 3
Sales				$3,420,000	$2,850,000	3705000
Cost of Goods sold				3120000	2500000	3530000
Gross Margin				$300,000	$350,000	175000
Selling and distribution expense				300,000	290,000	305000
Net operating income				0	60,000	-130000