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 DONN $250,000 $160,000 During the year, the company produced 25,000 units and sold 21,000 units. The selling price of the company's product is $47 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 Req 2A Reg 2B Compute the unit product cost. Assume that the company uses absorption costing. Unit product cost

Answer 1

Answer:-1-a)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$14+$8+$2+$10 = $34 per unit

Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$250000/25000 units =$10 per unit

b)-

Lynch Company
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	21000 units*$47 per unit		987000
Less:- Cost of goods sold (b)
Opening inventory
Add:- Cost of goods manufactured		850000
Direct materials	25000 units*$14 per unit	350000
Direct labor	25000 units*$8 per unit	200000
Variable manufacturing overhead	25000 units*$2 per unit	50000
Fixed manufacturing overhead		250000
Cost of goods available for sale		850000
Less:- Closing inventory	4000 units*$34 per unit	136000	714000
Gross margin C= a-b			273000
Less:-Variable selling & administrative exp.	21000 units*$2 per unit		42000
Less:- Fixed costs
Selling & administrative exp.			160000
Net Income			71000

2-a)-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$14+$8+$2 = $24 per unit

b)-

Lynch Company
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	21000 units*$47 per unit		987000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		600000
Direct materials	25000 units*$14 per unit	350000
Direct labor	25000 units*$8 per unit	200000
Variable manufacturing overhead	25000 units*$2 per unit	50000
Variable cost of goods available for sale		600000
Less:- Closing inventory	4000 units*$24 per unit	96000	504000
Gross contribution margin C= a-b			483000
Less:-Variable selling & administrative exp.	21000 units*$2 per unit		42000
Contribution margin			441000
Less:- Fixed costs
Manufacturing overhead			250000
Selling & administrative exp.			160000
Net Income			31000