Question

Required information Case 4-29 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO4-1, LO4-2] [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: 16 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 $530,000 $ 200,000 During its first year of operations, O'Brien produced 95,000 units and sold 71,000 units. During its second year of operations, it produced 77,000 units and sold 96,000 units. In its third year, O'Brien produced 84,000 units and sold 79,000 units. The selling price of the company's product is $74 per unit.

Answer 1

Computation of Unit Product Cost
	Year 1	Year 2	Year-3
Direct material	$29.00	$29.00	$29.00
Direct labour	$16.00	$16.00	$16.00
Variable manufacturing overhead	$4.00	$4.00	$4.00
Product cost	$49.00	$49.00	$49.00

WALSH COMPANY
Income Statement (Variable costing)
	Year 1	Year 2	Year-3
No of Unit	71000	96000	79000
Sales@$74 (a)	$5,254,000.00	$7,104,000.00	$5,846,000.00
Less: Variable Expenses
Variable cost of goods sold  @$49	$3,479,000.00	$4,704,000.00	$3,871,000.00
Variable selling administrative expenses @$2	$142,000.00	$192,000.00	$158,000.00
Total Variable expenses (b)	$3,621,000.00	$4,896,000.00	$4,029,000.00
Contribution margin (c=a-b)	$1,633,000.00	$2,208,000.00	$1,817,000.00
Fixed Expenses
Fixed Manufacturing overhead	$530,000.00	$530,000.00	$530,000.00
Fixed selling and administrative expenses	$200,000.00	$200,000.00	$200,000.00
Total Fixed Expenses (d)	$730,000.00	$730,000.00	$730,000.00
Net Operating Income / Loss (c-d)	$903,000.00	$1,478,000.00	$1,087,000.00