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 $20
Direct labor $12
Variable manufacturing overhead $4
Variable selling and administrative $2
Fixed costs per year:
Fixed manufacturing overhead $ 960,000
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 $58 per unit.
Required:
1. Compute the company’s break-even point in units sold.
Assume the company uses variable costing:
a.
Compute the unit product cost for year 1, year 2, and year 3.
Prepare an income statement for year 1, year 2, and year 3.
Assume the company uses absorption costing:
a.
Compute the unit product cost for year 1, year 2, and year 3
Prepare an income statement for year 1, year 2, and year 3.
Answer:
1
. Compute the company’s break-even point in units sold.
| Seeling Price Per Unit | 58 |
| Less: | |
| Variable Cost Per Unit | -38 |
| Contribution Margin | 20 |
BEP = Fixed Cost / Contribution Per Unit
= 960,000+240,000 / 20
=1100,000 /20
=60,000 units
2
. Compute the unit product cost for year 1, year 2, and year 3.
| Year 1 | Year 2 | Year 3 | |
| Direct Materil | 20 | 20 | 20 |
| Direct Labour | 12 | 12 | 12 |
| Variable Manu.Over Head | 4 | 4 | 4 |
| Variable costing Unit Product Cost | 36 | 36 | 36 |
Variable Costing Income statement
| Year 1 | Year 2 | Year 3 | |
| Sales | 3480000 | 2900000 | 3770000 |
| 60000*58 | 50000*58 | 65000*58 | |
| Less: | |||
| Variable Expnses | 2160000 | 1800000 | 2340000 |
| Selling and Admin Expnses | 120000 | 100000 | 130000 |
| Contribution Margin | 1200000 | 1000000 | 1300000 |
| Less: Fixed Exp | |||
| Manu Overhead | 960000 | 960000 | 960000 |
| Selling And Admin OH | 240000 | 240000 | 240000 |
| 0 | -200000 | 100000 |
3
Assume the company uses absorption costing:
Compute the unit product cost for year 1, year 2, and year 3
| Year 1 | Year 2 | Year 3 | |
| Direct Materil | 20 | 20 | 20 |
| Direct Labour | 12 | 12 | 12 |
| Variable Manu.Over Head | 4 | 4 | 4 |
| Fixed Manu Over Head | 16 | 12.8 | 24 |
| Variable costing Unit Product Cost | 52 | 48.8 | 60 |
| Fixed Manu OH Year1 | |||
| Fixed Manu OH / Produced Unis | 960000/60000 | 16 | |
| Fixed Manu OH Year2 | |||
| Fixed Manu OH / Produced Unis | 960000/75000 | 12.8 | |
| Fixed Manu OH Year3 | |||
| Fixed Manu OH / Produced Unis | 960000/40000 | 24 | |
| Year 1 | Year 2 | Year 3 | |
| Sales | 3480000 | 2900000 | 3770000 |
| 60000*58 | 50000*58 | 65000*58 | |
| Less: | |||
| Cost of Goods Sold | 3120000 | 2440000 | 3900000 |
| Contribution Margin | 360000 | 360000 | -260000 |
| Less: | |||
| Selling and Admin Expnses Variable | 120000 | 100000 | 130000 |
| Selling And Admin OH | 240000 | 240000 | 240000 |
| 0 | 20000 | -630000 |
