Haas Company manufactures and sells one product. The following information perta
ID: 2339843 • Letter: H
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 $ 23
Direct labor $ 15
Variable manufacturing overhead $ 6 Variable
selling and administrative $ 1
Fixed costs per year:
Fixed manufacturing overhead $ 240,000 Fixed selling and administrative expenses $ 180,000
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 $52 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.
Explanation / Answer
Answers
Direct Materials
$ 23.00
Direct Labor
$ 15.00
Variable Manufacturing Overhead
$ 6.00
Variable Selling & Administrative
$ 1.00
Total variable cost per unit
$ 45.00
Sales Price per unit
$ 52.00
Contribution margin per unit
$ 7.00
1
Fixed Manufacturing Overhead
$ 240,000.00
2
Fixed Selling & Administrative expenses
$ 180,000.00
A = 1+2
Total Fixed Cost
$ 420,000.00
B
Contribution margin per unit
$ 7.00
C = A/B
Break Even Point in Unit Sales
60,000.00
Variable Costing
Year 1
Year 2
Year 3
Direct Materials
$ 23.00
$ 23.00
$ 23.00
Direct Labor
$ 15.00
$ 15.00
$ 15.00
Variable Manufacturing Overhead
$ 6.00
$ 6.00
$ 6.00
Total Unit product cost
$ 44.00
$ 44.00
$ 44.00
Income Statements
Year 1
Year 2
Year 3
Units Sold
$ 60,000.00
$ 50,000.00
$ 65,000.00
Sales Revenue
$ 3,120,000.00
$ 2,600,000.00
$ 3,380,000.00
Variable cost [total]
$ 2,700,000.00
$ 2,250,000.00
$ 2,925,000.00
Contribution Margin
$ 420,000.00
$ 350,000.00
$ 455,000.00
Fixed Cost
$ 420,000.00
$ 420,000.00
$ 420,000.00
Net Operating Income
$ -
$ (70,000.00)
$ 35,000.00
Year 1
Year 2
Year 3
Direct Materials
$ 23.00
$ 23.00
$ 23.00
Direct Labor
$ 15.00
$ 15.00
$ 15.00
Variable Manufacturing Overhead
$ 6.00
$ 6.00
$ 6.00
Total Variable Manufacturing Cost per unit
$ 44.00
$ 44.00
$ 44.00
Fixed manufacturing Overhead
$ 240,000.00
$ 240,000.00
$ 240,000.00
Units produced
60,000
75,000
40,000
Fixed Cost per unit
$ 4.00
$ 3.20
$ 6.00
Total Unit Product Cost
$ 48.00
$ 47.20
$ 50.00
Income Statements Absorption Costing
Year 1
Year 2
Year 3
Sales Revenue
$ 3,120,000.00
$ 2,600,000.00
$ 3,380,000.00
Cost of Goods Sold:
Beginning Inventory
$ -
$ -
$ 1,180,000.00
Cost of units produced
$ 2,880,000.00
$ 3,540,000.00
$ 2,000,000.00
Ending Inventory
$ -
$ 1,180,000.00
$ -
Cost of Goods Sold
$ 2,880,000.00
$ 2,360,000.00
$ 3,180,000.00
Gross Profits
$ 240,000.00
$ 240,000.00
$ 200,000.00
Operating Expenses:
Variable Selling & Admin
$ 60,000.00
$ 50,000.00
$ 65,000.00
Fixed Selling & Admin
$ 180,000.00
$ 180,000.00
$ 180,000.00
Net Operating Income
$ -
$ 10,000.00
$ (45,000.00)
Direct Materials
$ 23.00
Direct Labor
$ 15.00
Variable Manufacturing Overhead
$ 6.00
Variable Selling & Administrative
$ 1.00
Total variable cost per unit
$ 45.00
Sales Price per unit
$ 52.00
Contribution margin per unit
$ 7.00
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