Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year 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 NNO $403,000 $313,000 During the year, the company produced 31,000 units and sold 26,000 units. The selling price of the company's product is $55 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B Compute the unit product cost. Assume that the company uses absorption costing. Unit product cost |

Answer 1

Answer:

1. Company uses absorption costing

unit product cost
particular	amount
direct material	12
direct labour	9
variable manufacturing overhead	2
fixed manufacturing overhead (403000/ 31000)	13
unit product cost	36

income statement using absorption costing
particular	amount
sale (26000 x 55)	1,430,000
less: cost of goods sold (26000 x 36)	936,000
gross profit	494,000
less: selling expense (313000 + 26000 x 2)	365,000
net income	129,000

1. Company uses variable costing

unit product cost
particular	amount
direct material	12
direct labour	9
variable manufacturing overhead	2
unit product cost	23

income statement using variable costing
particular	amount
sale (26000 x 55)	1,430,000
less: variable cost:
cost of goods sold (26000 x 23)	598,000
selling and admin expense (26000 x 2)	52,000
contribution margin	780,000
fixed cost:
fixed manufacturing overhead	403,000
fixed selling and admin expense	313,000
net income	64,000