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	$	21
Direct labor	$	13
Variable manufacturing overhead	$	8
Variable selling and administrative	$	1
Fixed costs per year:
Fixed manufacturing overhead	$	600,000
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 $57 per unit.

1. Shipping costs for the last 3 years have been as follows:

Year 1: $126,000

Year 2: $115,000

Year 3: $131,500

1. a. Use the 3 years of shipping expense given sold and calculate the variable cost per unit for Shipping.

b. Continue to use High-Low method, identify the average fixed cost (fixed cost per year $60,000) element for shipping.

d. Write the formula for shipping costs as Y = Fixed costs + VC*Q. Your formula should include Y and Q as variables and your answer to c) as Fixed Costs and your answer to b) as the VC per unit.

e. If Haas Company plans to produce and sell 90,000 units, how much can they expect their shipping costs to be for the period?

Answer 1

Year At 65000 units sold, # of Units sold 60,000 50,000 65,000 Shipping Costs $126,000 $115,000 $131,500 Shipping Costs Less: Variable shipping costs Fixed shipping costs $131,500 ($71,500) $60,000 [65000 x $1.10] 3) [50000 x $1.10] sold At 50000 units sold, Using High-Low Method: Shipping Costs $115,000 # of Units Shipping Particulars Less: Variable shipping costs ($55,000) Costs High 65,000 $131,500 Fixed shipping costs $60,000 Low 50,000 $115,000 Difference 15,000 $16,500 ($131500 - $115000) (65000-50000) Variable shipping costs per unit sold $1.10 (= Difference in shipping cost / Difference in number of units sold = $16500 / 15000 units = $1.1]

d) Estimated Cost function for shipping costs (using high-low method) is: Total shipping costs = Fixed costs + (Variable cost per unit x Number of units sold) ==> y = $60000 + $1.10X e) Variable shipping costs per unit sold Number of units sold Total variable department costs Add: Fixed shipping costs Total shipping costs estimated $1.10 90,000 $99,000 (90000 x $1.10 (Ref: Part-(a))] $60,000 (Ref: Part-(b)] $159,000