Haas Company manufactures and sells one product. The following information perta
ID: 2545085 • 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 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 $64 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.
Variable costs per unit: Manufacturing: Direct materials $ 29 Direct labor $ 21 Variable manufacturing overhead $ 5 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 330,000 Fixed selling and administrative expenses $ 150,000Explanation / Answer
1) Break even unit sales = total fixed cost/contribution margin total fixed cost fixed manufacturing overhead 330,000 fixed selling & administrative 150,000 total fixed cost 480,000 contribution margin per unit Selling price per unit 64 less variable cost Direct mterials 29 direct labor 21 VMOH 5 Variable selling & adm expense 1 56 contribution margin per unit 8 Break even unit sales = 480,000/8 60000 units answer 2a) unit product cost under variable costing Direct mterials 29 direct labor 21 VMOH 5 total unit product cost 55 year 1 year 2 year 3 unit product cost 55 55 55 b) Variable costing income statement units sold 60,000 50,000 65,000 year 1 year 2 year 3 sales 3840000 3200000 4160000 variable expenses variable cost of goods sold 3300000 2750000 3575000 variable selling & adm expense 60000 50000 65000 total variable expense 3360000 2800000 3640000 contribution margin 480000 400000 520000 fixed xpenses: fixed manufacturing overhead 330,000 330,000 330,000 fixed selling & adm expnes 150,000 150,000 150,000 total fixed expense 480,000 480,000 480,000 net income /loss 0 -80,000 40,000 3a) Absorptiong costing year 1 year 2 year 3 Direct mterials 29 29 29 direct labor 21 21 21 VMOH 5 5 5 FMOH (330000/units prod) 5.5 4.4 8.25 total unit product cost 60.5 59.4 63.25 year 1 year 2 year 3 unit product cost 60.5 59.4 63.25 3b) income statement year 1 year 2 year 3 sales 3840000 3200000 4160000 cost of goods sold 3630000 2970000 4015000 gross margin 210000 230000 145000 Selling and adm exp 210,000 200,000 215,000 net income/loss 0 30,000 -70,000 cost of goods sold for year 3 = 25000*59.4 + 40000*63.25 year 2 = 50000*59.4 year 1 = 60000*60.5
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