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Walsh Company manufactures and sells one product. The following information pertains to each of the companys first two years2. Assume the company uses absorption costing: a. Compute the unit product cost for year 1 and year 2. (Round your answers to

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Answer #1
1)
a) Variable Costing
Particulars Year 1 Year 2
Direct Materials $         29.00 $   29.00
Direct Labor $         15.00 $   15.00
Variable Manu. OH $           6.00 $      6.00
$         50.00 $   50.00
b) Income Statement
Particulars Year 1 Workings Year 2 Wokrings
Sales $ 2,360,000.00 (40000 x $ 59) $ 2,950,000.00 (50000 x $ 59)
Less: Variable Expenses
Direct Materials $ 1,160,000.00 $ 1,450,000.00
Direct Labor $     600,000.00 $     750,000.00
Variable Manu. OH $     240,000.00 $     300,000.00
Variable S&A expenses $     200,000.00 $     250,000.00
Total Variable Expenses $ 2,200,000.00 $ 2,750,000.00
Contribution Margin $     160,000.00 $     200,000.00
Less: Fixed Expenses
Fixed S&A expenses $       80,000.00 $       80,000.00
Fixed Manu. OH $     240,000.00 $     240,000.00
Total Fixed Expense $     320,000.00 $     320,000.00
Net Operating Income $   (160,000.00) $   (120,000.00)
2)
a) Absorption costing
Particulars Year 1 Workings Year 2 Workings
Direct Materials $   29.00 $   29.00
Direct Labor $   15.00 $   15.00
Variable Manu. OH $      6.00 $      6.00
Fixed Manu. OH $      4.80 ($ 240000 / 50000) $      6.00 ($ 240000 / 40000)
$   54.80 $   56.00
b) Income Statement
Particulars Year 1 Workings Year 2 Wokrings
Sales $ 2,360,000.00 (40000 x $ 59) $ 2,950,000.00 (50000 x $ 59)
Less: Cost of Goods sold $ 2,192,000.00 (40000 x $ 54.8) $ 2,788,000.00 [(10000 x $ 54.8) + (40000 x $ 56)]
Gross Margin $     168,000.00 $    162,000.00
Less: Selling and Adm. Expenses
Variable S&A expenses $     200,000.00 (40000 x $ 5) $    250,000.00 (50000 x $ 5)
Fixed S&A expenses $       80,000.00 $      80,000.00
Total S&A expenses $     280,000.00 $    330,000.00
Net operating income $   (112,000.00) $   (168,000.00)

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