Haas Company manufactures and sells one product. The following information perta

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 Variable selling and administrative $29 $21 $9 $3 Fixed costs per year. Fixed manufacturing overhead Fixed selling and administrative expenses $420,000 $180,000 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 $72 per unit Required: 1. Compute the company's break-even point in units sold Break even unit salesunits Break-even unit sales

Explanation / Answer

1) S.P. per unit 72 2) Direct Material 29 Direct Labour 21 V. manufacturing overheads 9 V. Selling & Administrative overheads 3 Variable overheads 62 3) Fixed Overheads Fixed manufacturing overheads 420000 F. Selling & Administrative overheads 180000 Total Fixed overheads 600000 4) Contribution per unit = S.P - V. Overheads (72-62) 10 Break even point (units) = Fixed overheads/Cont. per unit 600000/10 60000 units Variable costing Year 1 Year 2 Year 3 Direct Material 29 29 29 Direct Labour 21 21 21 V. manufacturing overheads 9 9 9 Fixed manufacturing overheads 7 5.6 10.5 66 64.6 69.5 Fixed manufacturing overhead 420000 420000 420000 Production 60000 75000 40000 Per unit Cost 7 5.6 10.5 Note: Marketing and administrative expenses are period costs and are not relevant in the computation of unit product cost. Income Statement Year 1 Year 2 Year 3 S.P. per unit 72 72 72 Sales (Units) 60000 50000 65000 Total revenue 4320000 3600000 4680000 Unit cost 66 64.6 69.5 Production (units) 60000 75000 40000 Total manufacturing Cost 3960000 4845000 2780000 Selling Cost V. Selling & Administrative overheads 3 3 3 Sales (Units) 60000 50000 65000 Total 180000 150000 195000 Fixed selling overhead 180000 180000 180000 Total 360000 330000 375000 Total Cost 4320000 5175000 3155000 Net Income/Loss 0 -1575000 1525000 Absorption costing Year 1 Year 2 Year 3 Direct Material 29 29 29 Direct Labour 21 21 21 V. manufacturing overheads 9 9 9 59 59 59 Income Statement Year 1 Year 2 Year 3 S.P. per unit 72 72 72 Sales (Units) 60000 50000 65000 Total revenue 4320000 3600000 4680000 Unit cost 59 59 59 V. Selling & Administrative overheads 3 3 3 Production (units) 60000 75000 40000 Total V.manufacturing Cost 3540000 4425000 2360000 Fixed manufacturing cost 420000 420000 420000 Selling Cost V. Selling & Administrative overheads 3 3 3 Sales (Units) 60000 50000 65000 Total 180000 150000 195000 Fixed selling overhead 180000 180000 180000 Total 360000 330000 375000 Total Cost 4320000 5175000 3155000 Net Income/Loss 0 -1575000 1525000

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