Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Variable costs per unit: Manufacturing: Direct materials 10 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses 5380,000 5290,800 During the year, the company produced 38,000 units and sold 18,000 units. The selling price of the company's product is $61 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 Compute the unit product cost. Assume that the company uses absorption costing nit Req 1B Req 2A Req 28 cost Req 1A Req 1B

Answer 1

1:- a):- he unit product cost under absorption costing would be:

Direct materials........................................................$ 10

Direct labor.................................................................$ 7

Variable manufacturing overhead............................$ 3

Total variable costs................................................... $ 20

Fixed manufacturing overhead

($380,000 ÷ 38,000 units)....................................... 10 Absorption costing unit product cost.......................$30

b. The absorption costing income statement:

Sales (18,000 units × $61 per unit)...................$1,098,000

Cost of goods sold (18,000 units × $30 per unit)..540,000 Gross margin...........................................................5,58,000

Selling and administrative expenses

[(18,000 units × $3 per unit) + $290,000]...............344,000 Net operating income........................................2,14,000

2:- (a):- he unit product cost under variable costing would be:

Direct materials........................................$ 10

Direct labor.................................................$ 7

Variable manufacturing overhead.............$ 3

Variable costing unit product cost.............$ 20

b)The variable costing income statement:

Sales (18,000 units ×$61 per unit).......................$1,098,000 Variable expenses:

Variable cost of goods sold

(18,000 units × $20 per unit).............. $360,000. selling exp (18,000 units × $3 per unit) 54,000. 4,14,000 Contribution margin .......................................................6,84,000 Fixed expenses:

Fixed manufacturing overhead ...............380,000

Fixed selling and administrative expense 290,000 6,70,000

Net operating income ................................................. 14,000