Haas Company manufactures and sells one product. The following information perta
ID: 2551781 • 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 $62 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 $ 26 Direct labor $ 18 Variable manufacturing overhead $ 6 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 390,000 Fixed selling and administrative expenses $ 150,000Explanation / Answer
Break Even Unit Sales = Total Fixed Cost / Contribution Margin Per Unit Total Fixed Cost = Fixed Manufacturing Overhead + Fixed Selling and admin expenses = 390,000 + 150,000 = 540,000 540000 Calculation of Contribution Margin Per Unit $ per Unit Selling Price 62 Total Variable Cost Direct Material $26 Direct Labor $18 Variable Manufacturing Overhead $6 Variable Selling and administrative expenses $3 Total Variable Cost $53 Contribution Margin (62 – 53) $9 Break Even Unit Sales = 540000 / 9 $60,000 2(a) – Calculation of Unit Product Cost under variable costing Unit Product Cost Year 1 Year 2 Year 3 Direct Material $26 $26 $26 Direct Labor $18 $18 $18 Variable Manufacturing Overhead $6 $6 $6 Unit Product Cost $50 $50 $50 2(b) Hass Company Variable Costing Income Statement Year 1 Year 2 Year 3 60000 75000 40000 Sales (Units Sold x $62) $3,720,000 $3,100,000 $4,030,000 Variable expenses: Direct Material (Unit Produced x 26) $1,560,000 $1,950,000 $1,040,000 Direct Labor (Unit produced x 18) $1,080,000 $1,350,000 $720,000 Variable Manufacturing Overhead (Unit produced x 6) $360,000 $450,000 $240,000 Production Cost $3,000,000 $3,750,000 $2,000,000 Add: Beginning Inventory (Beginning inventory from note 1 x Unit Product Cost from Part 2(a)) $0 $0 $1,250,000 Less: Ending Inventory (Ending Inventory Units from Note 1 x Unit Product Cost from Part 2(a)) $0 ($1,250,000) $0 Variable Production Cost $3,000,000 $2,500,000 $3,250,000 Add: Variable Selling and administrative expenses (Units Sold x 3) $180,000 $150,000 $120,000 Total Variable expenses $3,180,000 $2,650,000 $3,370,000 Contribution Margin (Sales - Total Variable Expenses) $540,000 $450,000 $660,000 Fixed Expenses: Fixed Manufacturing Overhead $390,000 $390,000 $390,000 Fixed Selling and administrative expenses $150,000 $150,000 $150,000 Total fixed expenses $540,000 $540,000 $540,000 Net Operating Income (loss) $0 ($90,000) $120,000 Note 1 – Year 1 Year 2 Year 3 Units Produced 60,000 75,000 40,000 Units Sold 60,000 50,000 65,000 Ending Inventory 0 25,000 0 Beginning Inventory 0 0 25,000 3(a) – Unit Product Cost under absorption costing Unit Product Cost Year 1 Year 2 Year 3 Direct Material $26 $21 $21 Direct Labor $18 $13 $13 Variable Manufacturing Overhead $6 $4 $4 Fixed Manufacturing Overhead Per Unit (380,000 / Units Produced) $6 $5 $10 Unit Product Cost $56 $43 $48
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