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	$	27
Direct labor	$	19
Variable manufacturing overhead	$	3
Variable selling and administrative	$	2
Fixed costs per year:
Fixed manufacturing overhead	$	460,000
Fixed selling and administrative expenses	$	240,000

During its first year of operations, Haas produced 100,000 units and sold 100,000 units. During its second year of operations, it produced 115,000 units and sold 90,000 units. In its third year, Haas produced 80,000 units and sold 105,000 units. The selling price of the company’s product is $58 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

Page 0 Break-even point in unit sales : си - Selling Price (PU) = Vaiiable ost (PU) = [27+19+3 +21 $58. ($ 51) Contribution (PU) = $7 fixed cust Ree year Fixed manufacturing on - fixed selline Adm EXP 2 $ 460,000 - $2,40,000 $ 700000 BEP imunite) = fixed cost Contribution (PU) - 100000 units $700000 $ 7.

year? Company usee vanable costing (a) Unit Reeduct cast - year 1 year 2 Variable cald (PU) $51 $51 fixed cost CPU $7 $7.777 (full charges) $700.00 1 $ 700000 Il succo unike 1.90000 Ow 851 $6.666 16700300 7 05000 Totul (ast (PU) $58 $ 58.777 $52.660 (6) Income statement Sale brice cpu) Leve (eu) Contenibution (PU) $58 (851) $7 Yeau 2 $58 $51) $7. Yea 858 (851 $ 7 Units so la Total contribution less fined cast 90000 90000 000 8700000 $630000 $721000 ($70000) ($70000) ($705000) Profit/ (Loss) NU ($70000) $35000 Check sule - Total cost $58 (858) $58 $58 ($58.777 ($57.666) NU 100000 ($ 0.777) 9 oor $0.334 losooo unids sold Reefit (las) The ($ 70000) pple - Rloff $3 good Appear RA TAL EN

(3) Company uses Abeception (a unit Product cast conting و ها ديف ويوم Unit Rooduce 100000 115000 80000 variable costpu) fixeld cast (10) $51 $51 $51 $ 7 $6,087 $8.75 $7000ool ($7000007 ($700000 10 0000 115000 2800do units Total cost $58 $57.087. $59.75 veen 3 (b) In rome statement Yeard year 2 Sale Unite 100000 90000 sale price $58 458 Total sale $580000 852,20,000 R500 $58 $6090,ovo us. Cost ($580000) ($5137,830) ($6207175) [ 100000X58] $85000 tabooy $ 52.0 -25000 780000 $ 5975) 90000 $57.087 Soft (Less) N4 $82170 ($117175) Netloss - ($117175) - $82170 soos) Aphen ($38000) In totaling same as kep - Variable cest