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	$	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	$	150,000

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 $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.

Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 3A Req 3B Compute the unit product cost for Year 1, Year 2, and Year 3. Assume the company uses absorption costing. (Round your intermediate calculations and final answers to 2 decimal places.) Year 1 Year 2 Year 3 Unit product cost ( Req2B Req 3B >

Answer 1

1)	Break even unit sales = total fixed cost/contribution margin
	total fixed cost
	fixed manufacturing overhead				390,000
	fixed selling & administrative				150,000
	total fixed cost				540,000
	contribution margin per unit
	Selling price per unit				62
	less variable cost
	Direct mterials			26
	direct labor			18
	VMOH			6
	Variable selling & adm expense			3	53
	contribution margin per unit				9
	Break even unit sales = 540,000/9
			60000	units	answer
2a)	unit product cost under variable costing
	Direct mterials			26
	direct labor			18
	VMOH			6
	total unit product cost			50
				year 1	year 2	year 3
	unit product cost			50	50	50
b)	Variable costing income statement
	units sold				60,000	50,000	65,000
					year 1	year 2	year 3
	sales				3720000	3100000	4030000
	variable expenses
	variable cost of goods sold				3000000	2500000	3250000
	variable selling & adm expense				180000	150000	195000
	total variable expense				3180000	2650000	3445000
	contribution margin				540000	450000	585000
	fixed xpenses:
	fixed manufacturing overhead				390,000	390,000	390,000
	fixed selling & adm expnes				150,000	150,000	150,000
	total fixed expense				540,000	540,000	540,000
	net income /loss				0	-90,000	45,000
3a)	Absorptiong costing
				year 1	year 2	year 3
	Direct mterials			26	26	26
	direct labor			18	18	18
	VMOH			6	6	6
	FMOH	(390000/units prod)		6.5	5.2	9.75
	total unit product cost			56.5	55.2	59.75
				year 1	year 2	year 3
	unit product cost			56.5	55.2	59.75
3b)	income statement
				year 1	year 2	year 3
	sales			3720000	3100000	4030000
	cost of goods sold			3390000	2760000	3770000
	gross margin			330000	340000	260000
	Selling and adm exp			330,000	300,000	345,000
	net income/loss			0	40,000	-85,000
	cost of goods sold for year 3 = 25000*55.2 + 40000*59.75
	year 2 = 50000*55.2
			year 1 = 60000*56.5