Question

Problem 6-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6- 2] 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 27 Direct labor 14 Variable manufacturing overhead Variable selling and administrative Fixed costs per year: 6 1 $ 510,000 Fixed manufacturing overhead Fixed selling and administrative expenses 210,000 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 $60 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

2a) Units Product Cost Under Variable Costing Year 1 Year 2 Year 3 Unit Product Cost 47.00 47.00 47.00 Income Statement Under Variable Costing Year 1 Year 2 Year 3 Sales (@60) Variable Expense Variable Cost Of Goods Sold (@47) Variable Selling and Administrative Expenses(@1) Total Varible Expenses Contribution Magin Fixed Expenses Fixed mufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses 3600000 3000000 3900000 3055000 2820000 2350000 50000 65000 60000 3120000 2880000 2400000 720000 600000 780000 510000 510000 510000 210000 210000 210000 720000 720000 720000 Net Operating Income 0 -120000 60000

Assume the Absorption costing 3. Calculation of Unit cost Under Absorption Costing Year 2 Year 3 Year 1 Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head Units Product Cost 3a) Units Product Cost Under absorption Costing 27 27 27 14 14 14 6 6 6 12.75 8.5 6.8 55.50 53.80 59.75 Year 3 Year 1 Year 2 Unit Product Cost 55.50 53.80 59.75 3.b Income Statement Under Absorption Costing Year 1 Year 2 Year 2 Sales Cost of Goods Sold Gross Margin 3900000 3600000 3000000 3735000 3330000 2690000 165000 270000 310000 Selling and Administrative Overheads (Variable +Fixed) Net Operating Income 260000 275000 270000 50000 0 -110000