Question

Exercise 5-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO5-1, LO5-2, LO5-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years 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 expenses $ $ 240,000 60,000 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 $58 per unit.

Answer 1

	unit product cost
a.					Year 1	Year 2
	unit product cost				48	48
	notes
	Direct materials					27
	direct labor					15
	Variable manufacturing overhead					6
	unit product cost					48
b.		income statement
					year 1	year 2
	Sales	(40000*58);(50000*58)			2320000	2900000
	Variable expenses
	Variable cost of goods sold				1920000	2400000
	Variable selling and adm				200000	250000
	total variable expense				2120000	2650000
	Contribution margin				200000	250000
	Fixed expense
	Fixed manufacturing overhead				240,000	240,000
	Fixed selling & adm expense				60,000	60,000
	total fixed expense				300,000	300,000
	Net income				-100,000	-50,000
2)	unit product cost
a)					Year 1	Year 2
	unit product cost				52.8	54
	notes					year 1	year 2
	Direct materials					27	27
	direct labor					15	15
	Variable manufacturing overhead					6	6
	FMOH (240,000/50,000)….(240,000/40000)					4.8	6
	unit product cost					52.8	54
b)		income statement
					year 1	year 2
	Sales				2320000	2900000
	cost of goods sold				2112000	2688000
	Gross margin				208000	212000
	Selling and administrative expense				260,000	310,000
	Net income				-52,000	-98000
	cost of goods sold for year 2 (10,000*52.8+40000*54)
3)	Reconcilaition						year 1	year 2
	Variable costing net operating income (loss)						-100,000	-50,000
	add:Deferrred fixed overhead in ending inventory (10000*4.8)						48,000
	less:Fixed overhead realeased in beginning inventory(10000*4.8)							-48,000
	Absoption costing net operatin income (loss)						-52,000	-98,000