Question

Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two yea operations: Variable costs per uniti Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year! Fixed manufacturing overhead Fixed selling and administrative expenses > > > 24 17 4 $320,000 $ 60,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, i- produced 40,000 units and sold 50,000 units. The selling price of the company's product is $82 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

the top right corner that got cut off says "two years of"

Answer 1

1.)
a.)	Unit Product Cost
		Year 1	Year 2
	Unit Product cost ( 24 + 17 + 4 )	45.00	45.00
b.)	Income statement: Variable Costing
		Year 1	Year 2
	Sales	3,280,000	4,100,000
	Cost of Goods Sold:
	Beginning Inventory	-	450,000
	Add: Cost of Goods Manufactured	2,250,000	1,800,000
	Cost of Goods Available for Sale	2,250,000	2,250,000
	Less: Ending Inventory	450,000	-
	Total Cost of Goods Sold	1,800,000	2,250,000
	Gross Contribution Margin	1,480,000	1,850,000
	Sales and Administrative Expenses:
	Variable	120,000	150,000
	Contribution Margin	1,360,000	1,700,000
	Fixed Sales and Administrative Expenses	60,000	60,000
	Fixed Manufacturing overhead	320,000	320,000
	Total Fixed Expenses	380,000	380,000
	Net Operating Income	980,000	1,320,000
2.)
a.)	Unit Product Cost
		Year 1	Year 2
	Unit Product cost	51.40	53.00
	Working	( 24 + 17 + 4 ) +(320,000 /50,000 )	( 24 + 17 + 4 ) +(320,000 /40,000 )
b.)	Income statement: absorption costing
		Year 1	Year 2
	Sales	3,280,000	4,100,000
	Cost of Goods Sold:
	Beginning Inventory	-	514,000
	Add: Cost of Goods Manufactured	2,570,000	2,120,000
	Cost of Goods Available for Sale	2,570,000	2,634,000
	Less :Ending Inventory	514,000	-
	Total Cost of Goods Sold	2,056,000	2,634,000
	Gross Profit	1,224,000	1,466,000
	Sales and Administrative Expenses:
	Variable	120,000	150,000
	Fixed	60,000	60,000
	Total Fixed Sales and Administrative Expenses	180,000	210,000
	Net Operating Income	1,044,000	1,256,000
3)	Reconciliation
		Year 1	Year 2
	Net Income under Variable Costing	980,000	1,320,000
	Add: Overvaluation of Ending Inventory in Absorption Costing (514,000 - 450,000 )	64,000	-
	Less: Overvaluation of Opening Inventory in Absorption Costing ( 514,000 - 450,000 )	-	64,000
	Net Income under Absorption	1,044,000	1,256,000
		-	-