Question

Check my work 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 setting and administrative Fixed costs per year. Fixed manufacturing overhead Fixed selling and administrative expenses $ 120,000 $ 60,000 During its first year of operations, Hans 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 $52 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

Answer 1

Answer of Part 1:

Total Fixed Cost = Fixed Manufacturing Overhead + Fixed Selling and Administrative Expense
Total Fixed Cost = $120,000 + $60,000
Total Fixed Cost = $180,000

Contribution Margin per unit = Selling price per unit – Variable cost per unit
Contribution Margin per unit = $52 – ($24 + $16 + $7 + $2)
Contribution Margin per unit = $52 - $49
Contribution Margin per unit = $3

Break Even Point in Unit Sales = Total Fixed Cost / Contribution Margin per unit
Break Even Point in Unit Sales = $180,000 / $3
Break Even Point in unit sales = 60,000 units

Answer of Part 2-a:

Unit Product Cost = Direct Material + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $24 + $16 + $7
Unit Product Cost = $47

Answer of Part 2-b: Hass Company Variable Costing Income Statement Year 1 Year 2 Year 3 60,000 50,000 65,000 Unit Sold unit sold unit sold Sales @52 per unit 3120000 2600000 3380000 Less: Variable Cost of Goods Sold @47 2820000 2350000 3055000 Less: Variable Selling and Admiistrative Expenses @2 per unit 120000 100000 130000 Total Variable Cost 2940000 2450000 3185000 Contribution Margin 180000 150000 195000 Less: Fixed Manufacturing Overhead 120000 120000 120000 Less: Fixed Selling and Administrative Expenses 60000 60000 60000 Total Fixed Cost 180000 180000 180000 Income from Operations 0 -30000 15000

Answer of Part 3-a:

Year 1:

Fixed Manufacturing Cost per unit = Fixed Manufacturing Cost / Units Produced
Fixed Manufacturing Cost per unit = $120,000 / 60,000
Fixed Manufacturing Cost per unit = $2

Unit Product Cost = Direct material + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Cost
Unit Product Cost = $24 + $16 + $7 + $2
Unit Product Cost = $49

Year 2:

Fixed Manufacturing Cost per unit = Fixed Manufacturing Cost / Units Produced
Fixed Manufacturing Cost per unit = $120,000 / 75,000
Fixed Manufacturing Cost per unit = $1.6

Unit Product Cost = Direct material + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Cost
Unit Product Cost = $24 + $16 + $7 + $1.6
Unit Product Cost = $48.6

Year 3:

Fixed Manufacturing Cost per unit = Fixed Manufacturing Cost / Units Produced
Fixed Manufacturing Cost per unit = $120,000 / 40,000
Fixed Manufacturing Cost per unit = $3

Unit Product Cost = Direct material + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Cost
Unit Product Cost = $24 + $16 + $7 + $3
Unit Product Cost = $50

Answer of Part 3-b: Hass Company Absorption Costing Income Statement Year 1 Year 2 Year 3 60,000 50,000 65,000 Unit Sold unit sold unit sold Sales @52 per unit 3120000 2600000 3380000 Less: Cost of Goods Sold 2940000 2430000 3250000 Contribution Margin 180000 170000 130000 Less: Variable Selling and Administrative Expense @2 per unit 120000 100000 130000 Less: Fixed Selling and Administrative Expense 60000 60000 60000 Income from Operations 10000 -60000 0 Calculations: Year 1 Cost of Goods Sold = 60,000 * 49 = $2,940,000 Year 2 Cost of goods Sold = 50,000 * $48.6 = $2,430,000 Year 3: Cost of Goods Sold = 65,000 * $50 = $3,250,000