Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
| Variable cost per unit: | |
| Manufacturing: | |
| Direct materials | 22 |
| Direct labour | 14 |
| Variable manufacturing overhead | 5 |
| Variable selling and administrative | 3 |
| Fixed costs per year: | |
| Fixed manufacturing overhead | 270,000 |
| 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 $52 per unit.
Required:
1. Compute the company’s break-even point in units sold.
2. Assume the company uses variable costing:
a. Compute unit product costs 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 unit product costs 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. This part of the question is not part of your Connect assignment.
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Solution – Haas Company manufactures and sells one product
Break-Even Point (in units)= Contribution Margin per Unit / Total Fixed Costs
Step 1: Determine Total Fixed Costs
Total fixed costs consist of fixed manufacturing overhead and fixed selling and administrative expenses:
Total Fixed Costs=Fixed Manufacturing Overhead+Fixed Selling and Administrative Expenses
Total Fixed Costs = $270,000+$210,000=$480,000
Step 2: Calculate the Contribution Margin per Unit
The contribution margin per unit is calculated by subtracting the variable costs per unit from the selling price per unit.
Contribution Margin per Unit = Selling Price per Unit−Total Variable Costs per Unit
Selling Price per Unit:
Selling Price per Unit=$52
Variable Costs per Unit:
Direct Materials=$22
Direct Labour=$14
Variable Manufacturing Overhead=$5
Variable Selling and Administrative=$3
Total Variable Costs per Unit=22+14+5+3=$44
Contribution Margin per Unit:
Contribution Margin per Unit=52−44=$8
Step 3: Compute the Break-Even Point
Now that we have the total fixed costs and contribution margin per unit, we can calculate the break-even point:
Break-Even Point (in units)=480,0008 = 60,000 units
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