Question

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 During its first year of operations, O'Brien produced 93,000 units and sold 75,000 units. During its second year of operations, it produced 78,000 units and sold 91,000 units. In its third year, O'Brien produced 86,000 units and sold 81,000 units. The selling price of the company's product is $80 per unit. 2. Assume the company uses variable costing and a LIFO Inventory flow assumption (LIFO means last in first out in other words. It assumes that the newest 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. Complete this question by entering your answers in the tabs below. Reg 2A Req 28 Compute the unit product cost for Year 1, Year 2, and Year 3. Unit Product Cost Year 1 Year 2 Year 3

Answer 1

2a
	Unit product cost
Year 1	51	=28+18+5
Year 2	51	=28+18+5
Year 3	51	=28+18+5
2b
	Year 1	Year 2	Year 3
Sales	6000000	7280000	6480000
Variable expenses:
Variable cost of goods sold	3825000	4641000	4131000
Variable selling and administrative	225000	273000	243000
Total variable expenses	4050000	4914000	4374000
Contribution margin	1950000	2366000	2106000
Fixed expenses:
Fixed manufacturing overhead	550000	550000	550000
Fixed selling and administrative	130000	130000	130000
Total Fixed expenses	680000	680000	680000
Net Operating income	1270000	1686000	1426000
Workings:
	Year 1	Year 2	Year 3
Sales	=75000*80	=91000*80	=81000*80
Variable expenses:
Variable cost of goods sold	=75000*51	=91000*51	=81000*51
Variable selling and administrative	=75000*3	=91000*3	=81000*3