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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $ $ $ $ 12 7 2 2 $248,000 $ 158,000 During the year, the company produced 31,000 units and sold 21,000 units. The selling price of the company's product is $44 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.

Answer 1

924000 Requirement: la Calculation of Unit cost Under Absorption Costing Direct Material Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Over head (248,000 / 31,000) Unit product Cost 12.00 7.00 Requirement: 2b Variable Costing Income statement Sales Variable Expense: Variable cost of goods sold Variable Selling and Administrative Expense 2.00 441000 42000 8.00 29.00 483000 441000 Requirement: 1b Absorption costing Income Statement Sales Cost of Goods Sold Gross Margin Selling and Administrative Overheads Net Operating Income or loss Total Varible Expenses Contribution Magin Fixed Expenses : Fixed manufacturing Overheads Fixed Selling and Administrative Expenses Total fixed Expenses Net Operating Income or loss 924000 609000 315000 200000 115000 248000 1580001 406000 35000 Requirement: 2a Calculation of Unit cost Under Variable Costing Direct Material Direct Labor Variable Manufacturing Overhead Unit product Cost 12.00 7.00 2.00 21.00