Question

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 $ $ $ $ 24 13 6 5 $ 320,000 $ 50,000 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

1 a.

Unit product cost
	Year 1	Year 2
unit product cost	43	43

1 b.

Income statement
	Year 1	Year 2
Sales (40000*58);(50000*58)	2320000	2900000
Variable expenses
Variable cost of goods sold	1720000	2150000
Variable selling and adm	200000	250000
total variable expense	1920000	2400000
Contribution margin	400000	500000
Fixed expense
Fixed manufacturing overhead	320000	320000
Fixed selling & adm expense	50000	50000
total fixed expense	370000	370000
Net income	30000	130000

2 a.

Unit product cost
	Year 1	Year 2
unit product cost	49.4	51

Working:

	Year 1	Year 2
Direct materials	24	24
direct labor	13	13
Variable manufacturing overhead	6	6
FMOH (320000/50,000, (320000/40000)	6.4	8
unit product cost	49.4	51

2 b.

Income statement
	Year 1	Year 2
Sales	2320000	2900000
cost of goods sold	1976000	2534000
Gross margin	344000	366000
Selling and administrative expense	250000	300000
Net income	94000	66000

cost of goods sold for year 2 (10,000*49.4+40000*51)

3.

Reconciliation	Year 1	Year 2
Variable costing net operating income (loss)	30000	130000
add:Deferrred fixed overhead in ending inventory (10000*6.4)	64000
less:Fixed overhead realeased in beginning inventory(10000*6.4)		-64000
Absorption costing net operation income (loss)	94000	66000