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	$	30
Direct labour	$	22
Variable manufacturing overhead	$	6
Variable selling and administrative	$	2
Fixed costs per year:
Fixed manufacturing overhead	$	540,000
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 $73 per unit.

Required:

1. Compute the company’s break-even point in units sold.

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. (Round your intermediate and final answers to 2 decimal places.)

b. Prepare an income statement for year 1, year 2, and year 3. (Round your intermediate calculations to 2 decimal places.)

4. Not available in connect.

Answer 1

Selling per unit			73
Less: Variable cost per unit			60
CM per unit			13
Fixed cost			780000
Divide: CM per unit			13
Break even units			60000
Req 2
Compute the Variable costing Unit Product cost
				Year 1	Year 2	Year 3
Direct Material				30	30	30
Direct labour				22	22	22
Variable Manufacturing overheads				6	6	6
Variable costing unit prroduct cost				58	58	58
Construct The Variable Costing Income Statement under FIFO
				YEAR 1		YEAR 2		Year 3
Sales					4,380,000		3,650,000		4,745,000
Less: Variable cost
variable cost of goods sold				3,480,000		2,900,000		3,770,000
Variable selling expense				120,000	3,600,000	100,000	3,000,000	130,000	3,900,000
Contribution margin					780,000		650,000		845,000
Fixed expense:
Fixed Manufacturing overheads					540,000		540,000		540,000
Fixed selling expense					240,000		240,000		240,000
Net operating Income					0		-130,000		65,000
Req 3.
Construct The Absorption Costing Unit Product Cost
				Year 1	Year 2	Year 3
Direct Material				30	30	30
Direct labour				22	22	22
Variable Manufacturing overheads				6	6	6
Fixed Manufacturing overheads				9.00	7.20	13.5
Absorption costing unit prroduct cost				67.00	65.20	71.5
Construct the Absorption Costing Income Statement Under FIFO
				Year 1	Year 2	Year 3
Sales				$4,380,000	$3,650,000	4745000
Cost of Goods sold				4020000	3260000	4490000	(25000*65.20+40000*71.50)
Gross Margin				$360,000	$390,000	255000
Selling and distribution expense				360,000	340,000	370000
Net operating income				0	50,000	-115000