valabla costs per unit: Drect maters 54 varable manufacturing ovemead Varlable s
ID: 2539512 • Letter: V
Question
valabla costs per unit: Drect maters 54 varable manufacturing ovemead Varlable seling and administranve 3900,000 Fixed manufacturing overhead Ford seling and administrative expenses Curing s Hst ycar af opcrations, Haas produced 60,00 unlts and soid 60,000 unts Duing ts sccond ear at opcratione it produced 75 00 units and snld sooon units In its thind year, Haas prnduced n0o units and sold 65,000 unns. The seling price or he company's product is $58 per unit. 1. Compute the comparry's break even pont in units sol. unlt units 2. Aesuine Utve cpany uses rteceu. a. Compute the unit procuct cost for year 1, year 2, and year 3. Year 1 Unit produel coat b. Prepare an nceme statement for year 1, year 2, and year 3 Variable Costing Income Statement Total variable expenses Fixed expenses Total txed expenses Net operating incame (loss) 3. Assume the company uses atsorpúen costing Compute the unit product cost for year 1, year 2, and year 3 (Round your intermediate and inal answers to 2 decimal places.) b. Prepare an income statement for year 1, year 2, and year 3 Round your intermediate calculations to 2 decimal places.) Absorption Costing Income Statement Net operating income (loss)Explanation / Answer
Solution:
Part 1 --- Break Even Unit Sales
Break Even Point is the level of sales at which costs are equal to sales revenue and profit is zero. In other words, at break even point contribution margins are equal to total fixed cost.
Break Even Point (in units) = Total Fixed Cost / Contribution Margin Per Unit
Here,
Total Unit Variable Cost = Direct materials 20 + direct labor 12 + Variable manufacturing overhead 4 + variable selling and administrative 2 = $38 per unit
Contribution Margin Per Unit = Unit Selling Price $58 – Total Unit Variable Cost $38 = $20
Total Fixed Costs = Fixed Manufacturing overhead $960,000 + Fixed S&A Expense $240,000 = $1,200,000
Break Even Point (in units) = Total Fixed Cost $1,200,000 / Contribution Margin Per Unit 20
= 60,000 Units
Break Even Unit Sales = 60,000 Units
Part 2(a) – Unit Product Cost using variable costing
Variable Costing System
1) Product Cost refers to the costs used to fabricate/make/produce a product.
2) Under Variable Costing System, product cost includes only following variable manufacturing costs:
- Cost of direct material used
- Direct labor cost
- Variable manufacturing overheads.
3) Under this system, fixed costs are not considered in product cost and for valuation of closing stock of finished goods. Fixed costs are treated as period cost in this system.
4) The value of finished goods and work in process is also comprised only of Manufacturing Variable Costs.
5) Selling and administrative expenses are not included because these are not the expenses incurred in production department. These expenses relate to selling and admin department.
Unit Product Cost
Year 1
Year 2
Year 3
Direct materials cost per unit
$20
$20
$20
Direct labor cost per unit
$12
$12
$12
Variable Manufacturing Overhead per unit
$4
$4
$4
Unit Product Cost
$36
$36
$36
Part 2(b) – Income Statement
Income Statement (Using Variable Costing)
Year 1
Year 2
Year 3
Sales (Sold Units * $58)
$3,480,000
$2,900,000
$3,770,000
Variable Expenses:
Direct Materials (Unit sold x 20)
$1,200,000
$1,000,000
$1,300,000
Direct Labor (Unit sold x 12)
$720,000
$600,000
$780,000
Variable Manufacturing Overhead (Unit sold x 4)
$240,000
$200,000
$260,000
Variable S&A Expenses (Unit Sold x $2)
$120,000
$100,000
$130,000
Total Variable Expenses
$2,280,000
$1,900,000
$2,470,000
Contribution Margin (Sales - Total Variable Expenses)
$1,200,000
$1,000,000
$1,300,000
Fixed Expenses:
Fixed Manufacturing Overhead
$960,000
$960,000
$960,000
Fixed S&A Expenses
$240,000
$240,000
$240,000
Total Fixed Expenses
$1,200,000
$1,200,000
$1,200,000
Net Operating Income (loss)
$0
-$200,000
$100,000
Part 3(a) --- Unit Product Cost using Absorption Costing
Absorption Costing System
- Product Cost refers to the costs used to fabricate/make/produce a product.
- Under Absorption Costing, product cost includes both fixed and variable manufacturing expenses incurred in fabrication of the product or service.
- It includes cost of direct material used, cost of direct labor, consumable supplies used and manufacturing/factory overheads (both variable as well as fixed factory overhead).
- Ending Inventory is valued on Production Cost.
- Product Cost does not include Selling, General and Administrative Expenses.
Unit Product Cost
Year 1
Year 2
Year 3
Direct materials cost per unit
$20.00
$20.00
$20.00
Direct labor cost per unit
$12.00
$12.00
$12.00
Variable Manufacturing Overhead per unit
$4.00
$4.00
$4.00
Allocated Fixed Manufacturing Overhead
(Total MFR Overhead / Units Produced)
$16.00
(960,000/60000)
$12.80
(960000 / 75000)
$24.00
(960000 / 40,000)
Unit Product Cost
$52.00
$48.80
$60.00
Part 3(b) – Absorption Costing Income Statement
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Unit Product Cost
Year 1
Year 2
Year 3
Direct materials cost per unit
$20
$20
$20
Direct labor cost per unit
$12
$12
$12
Variable Manufacturing Overhead per unit
$4
$4
$4
Unit Product Cost
$36
$36
$36
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