Haas Company manufactures and sells one product. The followinginformation pertains to each of the company’s first three years ofoperations:
| | |
| Variable costs per unit: | | |
| Manufacturing: | | |
| Direct materials | $ | 23 |
| Direct labor | $ | 15 |
| Variable manufacturing overhead | $ | 6 |
| Variable selling and administrative | $ | 1 |
| Fixed costs per year: | | |
| Fixed manufacturing overhead | $ | 240,000 |
| Fixed selling and administrative expenses | $ | 180,000 |
|
During its first year of operations, Haas produced 60,000 unitsand sold 60,000 units. During its second year of operations, itproduced 75,000 units and sold 50,000 units. In its third year,Haas produced 40,000 units and sold 65,000 units. The selling priceof the company’s product is $52 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 Year3.
b. Prepare an income statement for Year 1, Year 2, and Year3.
3. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1, Year 2, and Year3.
b. Prepare an income statement for Year 1, Year 2, and Year3.
________________________________________________________________________
During Heaton Company’s first two years of operations, itreported absorption costing net operating income as follows:
| Year 1 | | Year 2 |
| Sales (@ $60 per unit) | $ | 1,020,000 | | $ | 1,620,000 |
| Cost of goods sold (@ $37 per unit) | | 629,000 | | | 999,000 |
| Gross margin | | 391,000 | | | 621,000 |
| Selling and administrative expenses* | | 301,000 | | | 331,000 |
| Net operating income | $ | 90,000 | | $ | 290,000 |
|
* $3 per unit variable; $250,000 fixed each year.
The company’s $37 unit product cost is computed as follows:
| | |
| Direct materials | $ | 10 |
| Direct labor | | 11 |
| Variable manufacturing overhead | | 2 |
| Fixed manufacturing overhead ($308,000 ÷ 22,000 units) | | 14 |
| Absorption costing unit product cost | $ | 37 |
|
Production and cost data for the first two years of operationsare:
| Year 1 | Year 2 |
| Units produced | 22,000 | 22,000 |
| Units sold | 17,000 | 27,000 |
|
Required:
1. Using variable costing, what is the unit product cost forboth years?
2. What is the variable costing net operating income in Year 1and in Year 2?
3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.
