Question

Exercise 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements (LO6-1, LO6-2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: $ 13 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 1 $ 288,000 $198,000 During the year, the company produced 24,000 units and sold 20,000 units. The selling price of the company's product is $48 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 14 Reg 1B Reg 18 Reg 2A Reg 2A Reg 2B Reg 28 Compute the unit product cost. Assume that the company uses absorption costing. Unit product cost < Req1A Reg 1B >

Answer 1

1a) Unit product cost: Absorption costing

Direct material	13
Direct labor	7
Variable overhead	1
Fixed overhead (288000//24000)	12
Unit product cost	33

1b) Income statement

Sales (20000*48)	960000
Cost of goods sold (20000*33)	660000
Gross profit	300000
Selling and administrative expense (20000+198000)	218000
Operating income	82000

2a) Unit product cost: Variable costing

Direct material	13
Direct labor	7
Variable overhead	1
Unit product cost	21

2b) Income statement

Sales (20000*48)		960000
Variable Cost of goods sold (20000*21)		420000
Manufacturing margin		540000
Variable selling and administrative		20000
Contribution margin		520000
Fixed cost
Fixed manufacturing overhead	288000
Fixed Selling and administrative expense	198000	486000
Operating income		34000