Question

TUTTOUUTTOPPes 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 $550,000 $140,000 During its first year of operations, O'Brien produced 95,000 units and sold 75,000 units. During its second year of operations, it produced 83,000 units and sold 98,000 units. In its third year, O'Brien produced 81,000 units and sold 76,000 units. The selling price of the company's product is $77 per unit. Case 4-29 (Algo) Part-1 Required: 1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first in first-out. In other words, 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.

Answer 1

Unit Product Cost Year 1 $ 48 $ 48 Year 2 Уеля 3 Calculation: Year 1 Direct materials &29 Direct labor $ 14 Variable manufacturingoverhead $ 5 Variable costing unit product $ 40 cost year 2 | Year 3 & 29 & 29. 4 14 14 5 $ 5 $ 48 $ 48

O'Brien Company Variable Costing Income Statement Year 1 year2 year 3 Sales $ 5,775,00 7,546,000 $5,832,000 Variable expenses: Variable cost of goods sold $3,600,000 $4,704,000 $3,640,00 wlable selling and administrative $ 300,00 $ 392,000$ 304,000 Total Variable expenses $ 3,900,000 4 5,096,000 $3,952,000 Contulbution margin $1,875,000 $2,450,000 $1,900,000 fixed expenses : fixed manufacturing overhead $ 550,000 $ 550,000 $ 550,006 fixed selling and administrative $ 140,000 $ 140,000 $ 140,000 $ 690,000 $ 690,000 690,000 $1,185,000 $1,760,000 $1,216,000 Total fixed expenses Net operating income calculation: in sales - sold units X selling pouce per unit Yearl: $ 77 per unit sales = = 75,000 units X $ 5,775,000 Year 2: sales $ 77 per unit = = 98,000 units X $ 7,546,000 Year 3 : sales = 76,000 units 8 & 17 per unit $ 5,852,000

Variable cost of goods sold = Sold units & Unit product cast Yeart: Variable cost of goods sold = 75,000 X $48. = $ 3,600,000 Year: Variable cost of goods sold = 98,000 X $48. = $4,704,000 Year3: Variable cost of goods sold = 76,000 $48. = $3,648,000 Variable selling and administrative expenses = sold units x Variable selling and administrative cost per unit Years: Variable $4. selling and administrative expenses = 75,000 = 300,000 Year 2: Varuable selling and administrative expenses = 98,000 X B4 = $ 392,000 Year 3: Variable selling and administrative expenses = 76,000 x $4 = $ 304,000