Question

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.

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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $240,000 $ 90,000 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, Complete this question by entering your answers in the tabs below. Reg 1A Req 1B Reg 2A Reg 28 Req3 Assume the company uses variable costing. Compute the unit product cost for year 1 and year 2. Year 1 Year 2 Unit product cost

Answer 1

Year 1 Year 2 1a. unit cost under variable costing direct material direct labor variable manufacturing over head 14 unit Product cost 39 39 Year 1 2,240,000 Year 2 2,800,000 1b) variable costing income statement sales (unit sold * 56) variable expense variable COGS (unit sold * 39) variable selling and administrative exp (unit sold*2) Total variable expense contribution margin fixed expense fixed manufacturing overhead fixed selling and administrative expense total fixed expnese net operating income (loss) 1,560,000 80,000 1,640,000 600,000 1,950,000 100,000 2,050,000 750,000 240,000 90,000 330,000 270,000 240,000 90,000 330,000 420,000

Year 1 Year 2 22 14 22 14 2a.unit cost under absorbtion costing direct material direct labor variable manufacturing overhead fixed manufacturing overhead** unit Product cost 4.80 43.80 6.00 45.00 Year 2 2b) absorbtion costing income statement sales (unit sold * 56) Less : COGS *** Gross profit variable selling and administrative exp (unit sold*2) Fixed selling and administrative expesne net operating income (loss) year 1 2,240,000 1,752,000 488,000 80,000 90,000 318,000 2,800,000 2,238,000 562,000 100,000 90,000 372,000 Year 2 **fixed manufacturing overhead ***COGS Year 1 240000/50000 40000*43.8 240000/40000 10000*43.8+40000*45 Year 1 Year 2 270,000 420,000 3.Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing = 10000*4.8 Absorption costing net operating income (loss) 48000 318,000 -48000 372,000