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		$29
      Direct labor		$21
      Variable manufacturing overhead		$9
    Variable selling and administrative		$3
  Fixed costs per year:
    Fixed manufacturing overhead	$	420,000
    Fixed selling and administrative expenses	$	180,000


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 $72 per unit.


Required:

1.	Compute the company’s break-even point in units sold.


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. (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.)

Answer to 1

Break Even Point in Units = Fixed Cost / Contribution Per Unit

Whereas Contribution = Sales Price - All variable Cost

Fixed Cost = 420000 + 180000 = 600000

Contribution = 72 - 29-21-9-3 = 10

Break Even Point = 600000 / 10

                             = 60000 Units

Answer 2a

Particulars	Year 1	Year 2	Year 3
Material	29	29	29
Labor	21	21	21
Variable Manufacturing Overhead	9	9	9
Unit Cost	59	59	59
Note: Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost.

Answer to 2b

Income Statement
Particulars	Year 1	Year 2	Year 3
Units Sold (A)	            60,000	              50,000	            65,000
Contribution (B)	                     10	                      10	                     10
Total Contribution (A x B)	         6,00,000	          5,00,000	         6,50,000
Less: Fixed Manufacturing Overhead	         4,20,000	          4,20,000	         4,20,000
Less: Fixed Selling and Admin Overhead	         1,80,000	          1,80,000	         1,80,000
Income ( Loss) Before tax	                      -  	        (1,00,000)	            50,000
Answer to 3a

Particulars	Year 1	Year 2	Year 3
Material	               29.00	                29.00	               29.00
Labor	               21.00	                21.00	               21.00
Variable Manufacturing Overhead	                 9.00	                   9.00	                 9.00
Fixed Manufacturing Overhead	                 7.00	                   5.60	               10.50
Unit Cost	               66.00	                64.60	               69.50
Working Note
Fixed Manufacturing Overhead (A)	420000	420000	420000
No of Units Produced (B)	60000	75000	40000
Per Unit (A/B)	                 7.00	                   5.60	               10.50
Answer to 3b

Income Statement
Particulars	Year 1	Year 2	Year 3
Sales Units x 72 per unit (A)	      43,20,000	        36,00,000	      46,80,000
Material Cost	      17,40,000	        21,75,000	      11,60,000
Labour Cost	      12,60,000	        15,75,000	         8,40,000
Variable Overhead	         5,40,000	          6,75,000	         3,60,000
Prime Cost	      35,40,000	        44,25,000	      23,60,000
Add: Fixed Manufacturing Overhead	         4,20,000	          4,20,000	         4,20,000
Cost of Production	      39,60,000	        48,45,000	      27,80,000
Add: Opening Inventory	                      -  	                       -  	      24,22,500
Less: Closing Inventory Cost
    (Cost of Production x Closing Units) / Units Produced	                      -  	        24,22,500	                      -
COGS	      39,60,000	        24,22,500	      52,02,500
Add: Variable Selling Expenses	         1,80,000	          1,50,000	         1,95,000
Add: Fixed Selling Expenses	180000	180000	180000
Cost of Sales (B)	      43,20,000	        27,52,500	      55,77,500
Net Income (A - B)	                      -  	          8,47,500	      (8,97,500)
Notes:
All cost are calculated by multiplying Unit Produced x Respective element cost.
Closing inventory cost is calculated on remaining inventory on proportionate cost.