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 13 1 1 F Fived per year: Fixed selling and administrative overhead $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: . 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 1B Req 2A Req 2B Compute the unit product cost. Assume that the company uses absorption costing. Unit product cost

Answer 1

Req 1A:Unit product cost=$ 33 per unit(See Note below)

NOTE: Absorption unit cost = direct materials ($13) + direct labor ($7) + variable manufacturing overhead ($1) + fixed manufacturing overhead $ 12{ ($288,000) /24000 units=$ 12}=$ 33 per unit

Note: Selling and administration cost is whether it is fixed or variable, is not the part of product cost under the absorption method or variable costing method.

Req 1B: Calculation of Income statement under absorption costing

Particulars	Amount (in $)
Sales (20,000*$ 48)	$ 9,60,000
Less: Variable cost of production(20,000* $ 33)	$ 6,60,000
Less: Variable selling and administration expense(20,000*$ 1)	$   20,000
Less: Fixed selling and administration expense	$ 198,000
Net profit	$ 82,000

Therefore, net profit under absorption costing is $ 82,000

Req 2A: Unit product cost=$ 21 per unit(See Note below)

NOTE: Variable unit cost= direct materials ($13) + direct labor ($7) + variable manufacturing overhead ($1)=$ 21

Note: Selling and administration cost is whether it is fixed or variable, is not the part of product cost under the absorption method or variable costing method

Req 2B: Calculation of Income statement under variable costing

Particulars	Amount (in $)	Amount (in $)
Sales (20,000*$ 48)		$ 9,60,000
Less: Variable Costs
Variable cost of production(20,000* $ 21)	$ 4,20,000
Variable selling and administration expense(20,000*$ 1)	$     20,000	$ 4,40,000
Contribution		$ 5,20,000
Less: Fixed Costs
Fixed Manufacturing Overhead	$ 288,000
Fixed selling and administration expense	$ 198,000	$ 4,86,000
Net profit		$    34,000

Answer 2

1 (A)	Absorption Unit Product   Cost	33.00
	Direct Material	13.00
	Direct Labour	7.00
	Manufacturing OH (Variable)	1.00
	Fixed Manufacturing OH (Per Unit)	12.00	(288000/24000)
	(Fixed Manufacturing OH / Units   Produced)
	Total Product Cost	33.00
1 (B)	Lynch Company
	Absorption Costing Income Statement
	Sales	960,000	(20000*48)
	Less: Cost of Goods Sold	660,000	(20000*33)
	Gross profit Margin	300,000
	Less: Selling   and Administrative Expense	218,000	(20000*1+198000)
	Net Income	82,000
2 (A)	Variable Unit Product Cost	21.00
	Direct Material	13.00
	Direct Labour	7.00
	Manufacturing OH (Variable)	1.00
	Total Product Cost	21.00
2(B)	Lynch Company
	Variable Costing Income Statement
	Sales		960,000	(20000*48)
	Variable Expenses
	Direct Material	260,000		(20000*13)
	Direct Labour	140,000		(20000*7)
	Manufacturing OH (Variable)	20,000		(20000*1)
	Selling and   Administrative Expense(Variable)	20,000		(20000*1)
	Total Variable Cost		440,000
	Contribution Margin		520,000
	Less: Fixed Expenses
	Fixed Manufacturing OH	288,000
	Selling and Administrative   Expense(Fixed)	198,000	486,000
	Net Income		34,000