Question

Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2A Req 2B Prepare an income statement for the year. Assume that the company uses variable costing Lynch Company Variable Costing Income Statement < Req 2A Req 2B )

Answer 1

1.a.

Unit Product cost [Refer working note 1]

$26

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Lynch Company
Absorption Costing Income Statement
Sales                                                          [Units sold x Selling price = 23,000 units x $43 per unit]	$989,000
Less: Cost of goods Sold                           [Units sold x Unit product cost = 23,000 units x $26 per unit]	$598,000
Gross Margin                                            [Sales - Cost of goods sold = $989,000 - $598,000]	$391,000
Total selling and administrative expenses [Variable cost + Fixed cost = (23,000 units x $1) + $240,000]	$263,000
Net operating income                               [$391,000 - $263,000]	$128,000

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2.a.

Unit Product cost [Refer working note 2]

$15

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Lynch Company
Variable Costing Income Statement
Sales                                                          [Units sold x Selling price = 23,000 units x $43 per unit]		$989,000
Variable expenses
Variable cost of goods sold                              [Unts sold x Unit product cost = 23,000 units x $15]	$345,000
Variable Selling and administrative expenses   [23,000 x $1]	$23,000
Total Variable expenses                                     [$345,000 + $23,000]		$368,000
Contribution Margin           [Sales - Total Variable expesnes = $989,000 - $368,000]		$621,000
Fixed expenses
Fixed manufacturing overhead	$330,000
Fixed selling and administrative expenses	$240,000
Total fixed expenses            [$330,000 + $240,000]		$570,000
Net Operating Income       [$621,000 - $570,000]		$51,000

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Working note 1 - Computation of cost per unit under absorption costing
	Amount
Direct material per unit	$11
Direct labor per unit	$3
Variable manufacturing overhead per unit	$1
Fixed manufacturing overhead per unit        [Fixed manufacturing overhead ÷ Number of units produced = $330,000 ÷ 30,000 units]	$11
Cost per unit      [$11 + $3 + $1 + $11]	$26

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Working note 2 - Computation of cost per unit under variable costing
	Amount
Direct material per unit	$11
Direct labor per unit	$3
Variable manufacturing overhead per unit	$1
Cost per unit     [$11 + $3 + $1]	$15