Question

e Costing Case 6 Saved Help Save & Exit Subr Check my worle Required information The following information applies to the questions displayed below.) O'Brien 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 $ 660,000 $ 120,000 During its first year of operations, O'Brien produced 100,000 units and sold 80,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, O'Brien produced 80,000 units and sold 3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first in first-out. In other words, it assumes that the oldest units in inventory are sold first): a. Compute the unit product cost for Year 1 Year 2, and Year 3 b. Prepare an income statement for Year 1, Year 2, and Year 3. < Prev 2 2 :: Next

Answer 1

3a.

Computation of Unit Product Cost - Absorption Costing
Particulars	Year 1	Year 2	Year 3
Unit Product Cost:
Direct material	$32.00	$32.00	$32.00
Direct Labor	$20.00	$20.00	$20.00
Variable manufacturing overhead	$4.00	$4.00	$4.00
Fixed manufacturing overhead ($500,000 / Nos of unit produced)	$6.60	$8.80	$8.25
Unit Product Cost	$62.60	$64.80	$64.25

3b.

Income Statement - Absorption Costing - O'Brien Company
	Year 1	Year 2	Year 3
Sales	$60,00,000	$67,50,000	$56,25,000
Cost of goods sold	$50,08,000	$57,88,000	$48,21,500
Gross Profit	$9,92,000	$9,62,000	$8,03,500
Variable Selling & Administrative Expenses	$2,40,000	$2,70,000	$2,25,000
Fixed Selling & Administrative Expenses	$1,20,000	$1,20,000	$1,20,000
Net Operating Income	$6,32,000	$5,72,000	$4,58,500