Haas Company manufactures and sells one product. The following information perta
ID: 2436222 • 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:
During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company’s product is $66 per unit.
Required:
1. Compute the company’s break-even point in unit sales.
2. Assume the company uses variable costing: Compute the unit product cost for Year 1, Year 2, and Year 3 and Prepare an income statement for Year 1, Year 2, and Year 3.
3. Assume the company uses absorption costing: Compute the unit product cost for Year 1, Year 2, and Year 3 and Prepare an income statement for Year 1, Year 2, and Year 3.
Variable costs per unit: Manufacturing: Direct materials $ 24 Direct labor $ 20 Variable manufacturing overhead $ 5 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 440,000 Fixed selling and administrative expenses $ 200,000Explanation / Answer
Breakeven in units = Fixed cost / contribution margin per unit Fixed cost 640000 Contribution margin per unit 16 (66-50) Breakeven in units 40000 Units Variable costing Year 1 Year 2 Year 3 Direct material 24 24 24 Direct labor 20 20 20 Variable manufacturing overheads 5 5 5 Product cost per unit 49 49 49 Units manufactured 40000 55000 20000 Units sold 40,000 30,000 45,000 Income statement Sales revenue 2640000 1980000 2970000 Less Variable expense Variable cost of goods sold 1960000 1470000 2205000 Variable selling and admin expense 40000 30000 45000 Total variable expense 2000000 1500000 2250000 Contribution margin 640000 480000 720000 Less Fixed cost Fixed manufacturing expense 440000 440000 440000 Fixed Admin expense 200000 200000 200000 Total fixed expenses 640000 640000 640000 Net operating income 0 -160000 80000 1 Absorption costing Year 1 Year 2 Year 3 Direct material 24 24 24 Direct labor 20 20 20 Variable manufacturing overheads 5 5 5 Fixed manufacturing 11 8 22 Total product cost 60 57 71 Units produced 40000 55000 20000 Units sold 40,000 30,000 45000 Income statement 1st year 2nd year 3rd year Sales revenue 2640000 1980000 2970000 cost of goods sold Beginning inventory 0 0 1425000 cost of goods manufactured 2400000 3135000 1420000 Add Goods available for sale 2400000 3135000 2845000 Ending inventory 0 1425000 0 Less Cost of goods sold 2400000 1710000 2845000 Gross profit 240000 270000 125000 Selling and admin expenses Less Variable selling and admin expense 40000 30000 45000 Fixed Admin expense 200000 200000 200000 Total Selling and admin expenses 240000 230000 245000 Net operating income 0 40000 -120000
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