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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:

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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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses 21 13 4 N $ 330,000 $ 150,000 During its first year of operations, Haas produced 40,000 units and sold 40,000 units. During its second year of operations, it produced 55,000 units and sold 30,000 units. In its third year, Haas produced 20,000 units and sold 45,000 units. The selling price of the company's product is $52 per unit. Base Year calculations: In order for Haas Company to consider any alternatives, they must first understand their current or "base" position. Break-even, Margin of Safety and Degree of Operating Leverage are 3 criteria that can indicate the company's current situation. Use Haas's anticipated Year 4 information for these "base year" calculations. 8) Margin of Safety evaluates the company's position compared to "break-even. Use the information from 6) above and your CONNECT problem to summarize the information in the table below. Calculate the Margin of Safety in (a) dollars (b) units and (c) percent for Year 4. Remember, Haas Company produces and sells the same number of units in Year 4 that they SOLD in year 3. Break-even Base Year 4 Units Sales Revenue NOI a) MoS dollars 5 b) MoS units c) Mos % Note: Check figures must be supported to earn credit for grading purposes. 9) Calculate the Degree of Operating Leverage for Year 4, assuming nothing else changes. Looking at changes: Look at each situation below independently as a change to the "base" position. 10) Changing sales price: The new marketing director believes that Haas Company can sell more units of its product if they lower their sales price by 5% per unit. a) Calculate the new (i) sales price and (ii) contribution margin per unit. i) new sales price ii) CM per unit iii) What will the new Profit formula be? b) How many units will they need to sell to make the same operating income (NOI) as originally projected for year 4 (base assumption)? Note: Check figures must be supported to earn credit for grading purposes. c) If Haas Company can sell twice as many units (2 times original units) with the decreased sales price, (i) how much operating income will they make? (iii) Should they lower the price? Explain your answer. i) operating income ii) Should they

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