Question

Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: $ 27 $ 17 $3 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 $ 2 $240,000 $50,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $51 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for year 1 and year 2. Year 1 Year 2 Unit product cost

Answer 1

Answer 1-a:

Year 1:

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
Unit product cost = $27 + $17 + $3
Unit product cost = $47.00

Year 2:

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead
Unit product cost = $27 + $17 + $3
Unit product cost = $47.00

Answer 1-b:

Walsh Company Variable Costing Income Statement Year 2 Year 1 $ 2,040,000 $ 2,550,000 Sales Variable Expenses: Variable Cost of Goods Sold Variable Selling and Administrative Expenses Total Variable Expenses Contribution Margin Fixed Expenses: Fixed Manufacturing Overhead Fixed Selling and Administrative Expenses Total Fixed Expenses Net Operating Income $ 1,880,000 $ 2,350,000 80,000 $ $ 1,960,000 $ 2,450,000 80,000| $ 100,000 100,000 240,000 $ 50,000 $ 290,000 $ -210,000 $ 240,000 50,000 290,000 -190,000

Answer 2-a:

Year 1:

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
Unit product cost = $27 + $17 + $3 + $240,000/50,000
Unit product cost = $51.80

Year 2:

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
Unit product cost = $27 + $17 + $3 + $240,000/40,000
Unit product cost = $53.00

Answer 2-b:

Walsh Company Absor ption Costing Income Statement Year 2 Year 1 $ 2,040,000 $ 2,550,000 $ 2,072,000 $ 2,638,000 -32,000 $ 130,000 $ -162,000 $ Sales Cost of Goods Sold Gross Profit -88,000 Selling and Administrative Expenses Net Operating Income 150,000 -238,000

Answer 3:

Reconciliation of Variable Costing and Absorption Costing Net Operating Income Year 1 Year 2 Variable Costing Net Operating Income Add: Fixed Manufacturing overhead deferred Deduct: Fixed Manufacturing overhead released Absorption Costing Net Operating Income -210,000 $ -190,000 48,000 48,000 -162,000 $ -238,000