Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year 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 $385,000 $295,000 During the year, the company produced 35,000 units and sold 17,000 units. The selling price of the company's product is $58 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year Complete this question by entering your answers in the tabs below. Req 1A Req 18 Reg 2A Reg 28 Compute the unit product cost. Assume that the company uses absorption costing. Unit product costs 11 K Regia Reg 1B >

Answer 1

1a) Calculation of unit product cost
direct material				10
direct labor				5
variable manufacturing overhead				1
fixed manufacturing overhead (385000/35000)				11
Unit product cost				27
b) Income statement-absorption costing
sales (17000*58)				986000
cost of goods sold (17000*27)				459000
Gross margin				527000
variable selling & administrative exp (17000*1)				17000
fixed selling & administrative exp				295000
net operating income				215000
2a) calculation of unit product cost
direct material				10
direct labor				5
variable manufacturing overhead				1
Unit product cost				16
b) Income statement-variable costing
sales				986000
variable expenses:
variable cost of goods sold (17000*16)				272000
variable selling & administrative expenses				17000
Contribution margin				697000
Fixed cost:
Fixed manufacturing overhead				385000
fixed selling & administrative exp				295000
net operating income				17000

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