Variable and Absorption Costing Unit Product Costs and Income Statements Haas Co
ID: 2418699 • Letter: V
Question
Variable and Absorption Costing Unit Product Costs and Income Statements
Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Problems Variable costs per unit: Manufacturing:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12
Variable manufacturing overhead . . . . . . . . . . . . . . . $4
Variable selling and administrative . . . . . . . . . . . . . . . . $2
Fixed costs per year: Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . $960,000
Fixed selling and administrative expenses . . . . . . . . . . $240,000
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 $58 per unit.
Required:
1. Compute the company’s break-even point in units sold.
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.
4. Compare the net operating income figures that you computed in requirements 2 and 3 to the
break-even point that you computed in requirement
Explanation / Answer
Answer: 1
Answer: 2
Using Variable costing
Unit cost of Production is 36
Income Statement
Answer: 3
Using Absorption costing
Unit cost of production is 52
Income statement
Answer: 4
Comparision of Net Operating income figures under variable and absorption cost method
Particulars Selling Price 58 Less: Variable Cost Direct material 20 Direct Labour 12 Variable manufacturing overhead 4 Variable Selling & Administrative 2 38 Contribution per Unit: (58-38) 20 Fixed Cost Fixed manufacturing overhead 960000 Fixed selling & Administrative Expense 240000 Total Fixed Cost 1200000 Break even point: (Fixed cost/ Contribution per unit) Break even point (units): (1200000/ 20) 60000 unitsRelated Questions
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