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FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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**Income Statement Preparation Using Variable Costing for Years 1, 2, and 3: Haas Company**

This section entails the preparation of income statements for Haas Company for three consecutive years under the variable costing method.

---

**Variable Costing Income Statement**

|                    | Year 1         | Year 2        | Year 3         |
|--------------------|----------------|---------------|----------------|
| **Sales**          | $3,840,000     | $3,200,000    | $4,160,000     |
| **Variable Expenses** |              |               |                |
| - Variable Cost of Goods Sold | $3,300,000     | $2,750,000    | $3,575,000     |
| - Variable Selling and Administrative | $60,000        | $50,000       | $65,000        |
| **Total Variable Expenses** | $3,380,000     | $2,800,000    | $3,840,000     |
| **Contribution Margin** | $480,000       | $400,000      | $520,000       |
| **Fixed Expenses** |              |               |                |
| - Fixed Manufacturing Overhead | $330,000       | $330,000      | $330,000       |
| - Fixed Selling and Administrative | $150,000       | $150,000      | $150,000       |
| **Total Fixed Expenses** | $480,000       | $480,000      | $480,000       |
| **Net Operating Income (Loss)** | $0             | ($80,000)     | $40,000        |

---

**Explanation of Table Components:**

1. **Sales**: The total revenue generated from goods sold by the company.
2. **Variable Expenses**: Costs that vary directly with the level of production or sales volume.
   - **Variable Cost of Goods Sold**: Direct costs attributable to the production of goods that were sold.
   - **Variable Selling and Administrative Expenses**: Costs associated with the variable aspect of selling and administrative activities.
3. **Total Variable Expenses**: The sum of the variable cost of goods sold and variable selling and administrative expenses.
4. **Contribution Margin**: Sales revenue minus total variable expenses. It contributes towards covering fixed expenses and improving net profit.
5. **Fixed Expenses**: Costs that do not vary with the level
Transcribed Image Text:**Income Statement Preparation Using Variable Costing for Years 1, 2, and 3: Haas Company** This section entails the preparation of income statements for Haas Company for three consecutive years under the variable costing method. --- **Variable Costing Income Statement** | | Year 1 | Year 2 | Year 3 | |--------------------|----------------|---------------|----------------| | **Sales** | $3,840,000 | $3,200,000 | $4,160,000 | | **Variable Expenses** | | | | | - Variable Cost of Goods Sold | $3,300,000 | $2,750,000 | $3,575,000 | | - Variable Selling and Administrative | $60,000 | $50,000 | $65,000 | | **Total Variable Expenses** | $3,380,000 | $2,800,000 | $3,840,000 | | **Contribution Margin** | $480,000 | $400,000 | $520,000 | | **Fixed Expenses** | | | | | - Fixed Manufacturing Overhead | $330,000 | $330,000 | $330,000 | | - Fixed Selling and Administrative | $150,000 | $150,000 | $150,000 | | **Total Fixed Expenses** | $480,000 | $480,000 | $480,000 | | **Net Operating Income (Loss)** | $0 | ($80,000) | $40,000 | --- **Explanation of Table Components:** 1. **Sales**: The total revenue generated from goods sold by the company. 2. **Variable Expenses**: Costs that vary directly with the level of production or sales volume. - **Variable Cost of Goods Sold**: Direct costs attributable to the production of goods that were sold. - **Variable Selling and Administrative Expenses**: Costs associated with the variable aspect of selling and administrative activities. 3. **Total Variable Expenses**: The sum of the variable cost of goods sold and variable selling and administrative expenses. 4. **Contribution Margin**: Sales revenue minus total variable expenses. It contributes towards covering fixed expenses and improving net profit. 5. **Fixed Expenses**: Costs that do not vary with the level
**Haas Company Overview for Educational Website**

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: $5

**Variable Selling and Administrative:**
- $1 per unit

### Fixed Costs per Year:
**Manufacturing Overhead:**
- $330,000

**Selling and Administrative Expenses:**
- $150,000

### Production and Sales Data:
- **Year 1:** Produced 60,000 units; Sold 60,000 units.
- **Year 2:** Produced 75,000 units; Sold 50,000 units.
- **Year 3:** Produced 40,000 units; Sold 65,000 units.

The selling price of the company's product is $64 per unit.

### Required Calculations and Analysis:
1. **Compute the company’s break-even point in unit sales.**
2. **Assume the company uses variable costing:**
    - 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.
3. **Assume the company uses absorption costing:**
    - 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.

In this case, further analysis and detailed calculation would be needed to answer the specific required points such as break-even analysis, unit product cost computation, and preparation of income statements using variable and absorption costing for different years.
Transcribed Image Text:**Haas Company Overview for Educational Website** 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: $5 **Variable Selling and Administrative:** - $1 per unit ### Fixed Costs per Year: **Manufacturing Overhead:** - $330,000 **Selling and Administrative Expenses:** - $150,000 ### Production and Sales Data: - **Year 1:** Produced 60,000 units; Sold 60,000 units. - **Year 2:** Produced 75,000 units; Sold 50,000 units. - **Year 3:** Produced 40,000 units; Sold 65,000 units. The selling price of the company's product is $64 per unit. ### Required Calculations and Analysis: 1. **Compute the company’s break-even point in unit sales.** 2. **Assume the company uses variable costing:** - 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. 3. **Assume the company uses absorption costing:** - 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. In this case, further analysis and detailed calculation would be needed to answer the specific required points such as break-even analysis, unit product cost computation, and preparation of income statements using variable and absorption costing for different years.
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