Haas Company manufactures and sells one product. The following information perta
ID: 2512979 • 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 Direct labor Variable manufacturing overhead 28 20 Variable selling and administrative Fixed costs per year: 210,000 Fixed manufacturing overhead 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 $61 per unit.Explanation / Answer
Haas Company
Break-even point in unit sales = fixed cost/unit contribution margin
Unit contribution margin = unit selling price – unit variable cost
Unit selling price = $61
Unit variable cost –
Direct materials$28
Direct labor$20
Variable manufacturing overhead $4
Variable selling overhead$3
Total variable cost$55
Contribution margin $6
Fixed cost –
Fixed manufacturing overhead$210,000
Fixed selling overhead$150,000
Total fixed cost$360,000
Break-even point in unit sales = $360,000/$6 = 60,000 units
2a. Assuming the company uses variable costing method:
Unit product cost –
Direct materials $28
Direct labor$20
Variable manufacturing overhead$4
Variable selling overhead$3
Total product cost$55
The unit product cost = $55
The unit product cost for year 1, year 2 and year 3 would remain same at $55.
According to variable costing method, the unit cost of a product comprises all the direct costs of the number of units sold. The cost component does not include fixed overheads – both manufacturing and selling and administrative.
Hence, assuming variable costing method, the unit cost of the product for Year1, Year 2 and Year 3 is $55.
The number of units produced is also not considered.
The number of units sold is considered to arrive at the total direct costs and contribution.
2b. Income statement under variable costing method:
Haas Company
Variable Costing Income Statement
Year1
Year2
Year 3
Sales in units
60,000
50,000
65,000
Sales volume @ $61 per unit
$3,660,000
$3,050,000
$3,965,000
Cost of goods sold:
Variable production costs-
40,000 units
direct material cost@$28 per unit
$1,680,000
$1,400,000
$1,120,000
Direct labor cost @$20 per unit
$1,200,000
$1,000,000
$800,000
Variable manufacturing overhead @$4 per unit
$240,000
$200,000
$160,000
Cost of goods manufactured
$3,120,000
$2,600,000
$2,080,000
Add: Beginning inventory
---
---
$1,300,000
(25,000 units x $52)
Cost of goods available for sale
$3,120,000
$2,600,000
$3,380,000
Less: Closing inventory
$0
$0
$0
Cost of goods sold
$3,120,000
$2,600,000
$3,380,000
Marginal Contribution
$540,000
$450,000
$585,000
Less: Fixed manufacturing overhead
$210,000
$210,000
$210,000
Variable selling and administrative expenses
$180,000
$150,000
$195,000
Fixed selling and administrative expenses
$150,000
$150,000
$150,000
Net Income
$0
($60,000)
$30,000
In year 3, cost of goods manufactured is calculated for 40,000 units and beginning inventory of 25,000 units is added to arrive at the cost of goods available for sale, 65,000 units sold.
Though the company produced 75,000 units in year 2, the cost of goods manufactured is calculated for 50,000 units, since the number of units sold in the Year 2 is 50,000 units.
3a.Assuming the company uses absorption costing, computation of the unit product cost for Year 1, Year 2 and Year 3:
Year 1
Year 2
Year 3
Direct material costs
$28
$28
$28
Direct labor costs
$20
$20
$20
Variable overhead
$4
$4
$4
Fixed manufacturing overhead
$210,000/60,000
$210,000/75,000
$210,000/40,000
3.5
$2.80
$5.25
Unit product cost
$55.50
$54.80
$57.25
3b. Income Statement for Year 1, Year 2 and Year 3 based on absorption costing:
Haas Company
Income Statement under Absorption Costing
Year 1
Year 2
Year 3
Sales in units
60,000
50,000
65,000
sales @61 per unit
$3,660,000
$3,050,000
$3,965,000
Beginning inventory
$0
$0
$1,370,000
Add: Cost of goods manufactured
$3,330,000
$4,110,000
$2,290,000
Cost of goods available for sale
$3,330,000
$4,110,000
$3,660,000
Less: closing inventory
$0
$1,370,000
$0
$3,330,000
$2,740,000
$3,660,000
Gross Profit
$330,000
$310,000
$305,000
Less: marketing and administrative expenses:
variable overhead @$3 per unit
$180,000
$150,000
$120,000
Fixed overhead
$150,000
$150,000
$150,000
Net Income
$0
$10,000
$35,000
Haas Company
Variable Costing Income Statement
Year1
Year2
Year 3
Sales in units
60,000
50,000
65,000
Sales volume @ $61 per unit
$3,660,000
$3,050,000
$3,965,000
Cost of goods sold:
Variable production costs-
40,000 units
direct material cost@$28 per unit
$1,680,000
$1,400,000
$1,120,000
Direct labor cost @$20 per unit
$1,200,000
$1,000,000
$800,000
Variable manufacturing overhead @$4 per unit
$240,000
$200,000
$160,000
Cost of goods manufactured
$3,120,000
$2,600,000
$2,080,000
Add: Beginning inventory
---
---
$1,300,000
(25,000 units x $52)
Cost of goods available for sale
$3,120,000
$2,600,000
$3,380,000
Less: Closing inventory
$0
$0
$0
Cost of goods sold
$3,120,000
$2,600,000
$3,380,000
Marginal Contribution
$540,000
$450,000
$585,000
Less: Fixed manufacturing overhead
$210,000
$210,000
$210,000
Variable selling and administrative expenses
$180,000
$150,000
$195,000
Fixed selling and administrative expenses
$150,000
$150,000
$150,000
Net Income
$0
($60,000)
$30,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.