Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 23 |
| Direct labor | $ | 13 |
| Variable manufacturing overhead | $ | 3 |
| Variable selling and administrative | $ | 2 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 320,000 |
| Fixed selling and administrative expenses | $ | 80,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $56 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
| 1) | ||||||||||||||
| a) | Unit product cost under variable costing | b) | Income Statement | |||||||||||
| Particulars | Year 1 | Year 2 | Particulars | Year 1 | Workings | Year 2 | Workings | |||||||
| Direct Materials | $ 23.00 | $ 23.00 | Sales | $ 2,240,000.00 | (40000 x $ 56) | $ 2,800,000.00 | (50000 x $ 56) | |||||||
| Direct Labor | $ 13.00 | $ 13.00 | Less: | Variable Expenses | ||||||||||
| Variable Manu. OH | $ 3.00 | $ 3.00 | Direct Materials | $ 920,000.00 | (40000 x $ 23) | $ 1,150,000.00 | (50000 x $ 23) | |||||||
| $ 39.00 | $ 39.00 | Direct Labor | $ 520,000.00 | (40000 x $ 13) | $ 650,000.00 | (50000 x $ 13) | ||||||||
| Variable Manu. OH | $ 120,000.00 | (40000 x $ 3) | $ 150,000.00 | (50000 x $ 3) | ||||||||||
| Variable S&A | $ 80,000.00 | (40000 x $ 2) | $ 100,000.00 | (50000 x $ 2) | ||||||||||
| Contribution Margin | $ 600,000.00 | $ 750,000.00 | ||||||||||||
| Less: | Fixed Expenses | |||||||||||||
| Fixed Manu. OH | $ 320,000.00 | $ 320,000.00 | ||||||||||||
| Fixed S&A | $ 80,000.00 | $ 80,000.00 | ||||||||||||
| Net Operating Income | $ 200,000.00 | $ 350,000.00 | ||||||||||||
| 2) | |||||||||||||||||
| a) | Unit product cost under absorption costing | b) | Income Statement | ||||||||||||||
| Particulars | Year 1 | Workings | Year 2 | Particulars | Year 1 | Workings | Year 2 | Workings | |||||||||
| Direct Materials | $ 23.00 | $ 23.00 | Sales | $ 2,240,000.00 | (40000 x $ 56) | $ 2,800,000.00 | (50000 x $ 56) | ||||||||||
| Direct Labor | $ 13.00 | $ 13.00 | Less: | Cost of Goods sold | $ 1,816,000.00 | (40000 x $ 45.4) | $ 2,334,000.00 | [(10000 x $ 45.4) + (40000 x $ 47) | |||||||||
| Variable Manu. OH | $ 3.00 | $ 3.00 | Gross Margin | $ 424,000.00 | $ 466,000.00 | ||||||||||||
| Fixed Manu. OH | $ 6.40 | ($ 320000 / 50000) | $ 8.00 | ($ 320000 / 40000) | Less: | Selling and Adm Expenses | |||||||||||
| $ 45.40 | $ 47.00 | Variable | $ 80,000.00 | (40000 x $ 2) | $ 100,000.00 | (50000 x $ 2) | |||||||||||
| Fixed | $ 80,000.00 | $ 80,000.00 | |||||||||||||||
| Net Operating Income | $ 264,000.00 | $ 286,000.00 | |||||||||||||||
| 3) | Reconciliation | |||
| Particulars | Year 1 | |||
| Net Income under variable costing | $ 200,000.00 | |||
| Add: | Fixed Manu. OH for 10000 units | (10000 x $ 6.4) | $ 64,000.00 | |
| Net Income under absorption costing | $ 264,000.00 | |||
| Year 2 | ||||
| Net Income under variable costing | $ 350,000.00 | |||
| Less: | Fixed Manu. OH for 10000 units | (10000 x $ 6.4) | $ 64,000.00 | |
| Net Income under absorption costing | $ 286,000.00 | |||
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 28 Direct labor $ 10 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 50,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 27 Direct labor $ 14 Variable manufacturing overhead $ 4 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 50,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 24 Direct labor $ 15 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 400,000 Fixed selling and administrative expenses $ 70,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 23 Direct labor $ 10 Variable manufacturing overhead $ 6 Variable selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 26 Direct labor $ 10 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative expenses $ 60,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 26 Direct labor $ 17 Variable manufacturing overhead $ 6 Variable selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative expenses $ 90,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 27 Direct labor $ 13 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 100,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 27 Direct labor $ 12 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 23 Direct labor $ 18 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative expenses $ 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 15 Variable manufacturing overhead $ 5 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 250,000 Fixed selling and administrative expenses $ 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year...