Question

Haas Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations: 24 20 Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses 5 i $ 440,000 $ 200,000 During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company's product is $66 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.

Answer 1

Contribution margin per unit = $66-$24-$20-$5-$1 Contribution margin per unit = $16 per unit Break-even point in unit sales = ($440,000+$200,000)/$16 Break-even point in unit sales = $640,000/$16 Break-even point in unit sales = 40,000 units

1 2-a) 2 Year 1 Year 2 Year 3 $ 245 245 24 3 Direct Material 4 Direct Labor 5 Variable Manufacturing Overhead 6 Unit Product Cost $5 $ 49 $5 $ 49 $5 $ 49 8 2-b) Year 1 Year 2 Year 3 $ 2,640,000 $ 1,980,000 $ 2,970,000 10 Sales 11 Variable expenses:- 12 Variable cost of goods sold 13 Varibale selling and adminitrative expenses 14 Total Variable Expenses 15 Contribution margin 16 Fixed expenses:- 17 Fixed manufacturing overhead 18 Fixed selling and administrative expenses 19 Total Fixed expenses 20 Net operating Income (Loss) $ 1,960,000 $ 1,470,000 $2,205,000 $ 40,000 $ 30,000 $ 45,000 $ 2,000,000 $ 1,500,000 $2,250,000 $ 640,000 $ 480,000 $ 720,000 $ $ $ 440,000 $ 440,000 $ 200,000 $ 200,000 $ 640,000 $ 640,000 $ - $ -160,000 $ 440,000 200,000 640,000 80,000 s

A 1 2-a) 2 Year 1 Year 2 Year 3 20 20 3 Direct Material 4 Direct Labor 5 Variable Manufacturing Overhead 6 Unit Product Cost =+B3+B4+B5 =+C3+C4+C5 =+D3+D4+D5 8 2-b) Year 1 =40000*66 Year 2 =30000*66 Year 3 =45000*66 10 Sales 11 Variable expenses:- 12 Variable cost of goods sold 13 Varibale selling and adminitrative expenses 14 Total Variable Expenses 15 Contribution margin 16 Fixed expenses:- 17 Fixed manufacturing overhead 18 Fixed selling and administrative expenses 19 Total Fixed expenses 20 Net operating Income (Loss) -40000*B6 40000*1 =+B12+B13 =+B10-B14 =30000*C6 =30000*1 =+C12+C13 =+C10-C14 =45000*D6 =45000*1 =+D12+D13 =+D10-D14 440000 200000 =+B17+B18 =+B15-B19 440000 200000 |=+C17+C18 =+C15-C19 440000 200000 =+D17+D18 =+D15-D19

Year 1 Year 2 Year 3 $ 24 $ 20 23 3-a) 24 25 Direct Material 26 Direct Labor 27 Variable Manufacturing Overhead 28 Fixed Manufacturing Overhead 29 Unit Product Cost 30 31 3-b) $57 $ 71 33 Sales 34 Less: Cost of goods sold 35 Gross margin 36 Selling and adminitrative expenses 37 Net Operating Income (Loss) Year 1 Year 2 Year 3 $ 2,640,000 $ 1,980,000 $2,970,000 $ 2,400,000 $ 1,710,000 $3,195,000 $ 240,000 $ 270,000 $ -225,000 $ 240,000 $ 230,000 $ 245,000 - $ 40,000 $ -470,000

A Year 1 Year 2 Year 3 24 24 24 20 20 23 3-a) 24 25 Direct Material 26 Direct Labor 27 Variable Manufacturing Overhead 28 Fixed Manufacturing Overhead 29 Unit Product Cost 30 31 3-b) -440000/40000 =440000/55000 -440000/20000 =+B25+B26+B27+B28 =+C25+C26+C27+C28 -+D25+D26+D27+D28 33 Sales 34 Less: Cost of goods sold 35 Gross margin 36 Selling and adminitrative expenses 37 Net Operating Income (Loss) Year 1 =40000*66 -40000*B29 =+B33-B34 =200000+(40000*1) =+B35-B36 Year 2 Year 3 =30000*66 =45000*66 =30000*C29 -45000*D29 =+C33-C34 =+D33-D34 =200000+(30000*1) =200000+(45000*1) =+C35-C36 =+D35-D36