Question

Walsh Company manufactures and sells one product. The following information pertains to each of tha company's first two years of operations Variable costs per unt Direct materials Direct labor Variable manufacturing overhead S 22 S 14 $ 2 Variable selling and administrative Fixed costs per year Fixed manufacturing ovarhead Fixed selling and administrative expenses 60,000 $400,000 During its first yoar of oporations, Walsh produced 50,000 units and sold 40,000 units. During its socond year of operations, it produced 40,000 units and sod 50,000 units, The sel ing price of the company's product is $59 por unit Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for year 1 and year 2 Unit product cost b. Prepare an income statement for year 1 and year 2 Walsh Company Income Statement Year 1 Year 2 Veriable expenses Total variable expenses Fixed expenses Total fixed expenses Net operating income (loss) 2. Assume the company uses absorption costing a. Compute the unit product cost for year 1 and year 2. (Round your answer to 2 decimal places.) Year 1 Year 2 Unit product cost b. Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places.) sh ny Income Statement Year 1 Year 2 Net operating income (loss)

Answer 1

Answer 2

Req 1-a		Year 1	Year 2
	Direct materials	22.00	22.00
	Direct labor	14.00	14.00
	Variable   manufacturing overhead	2.00	2.00
	Unit product cost	38.00	38.00
Req 1-b	Variable costing   Income Statement
		Year   1	Working-Year   1	Year   2	Working-Year   2
	Sales	2,400,000	(40000 * 60)	3,000,000	(50000 * 60)
	Less: Variable costs:
	Variable cost of goods sold	1,520,000	(40000 * 38)	1,900,000	(50000 * 38)
	Variable selling and administrative   expenses	40,000	(40000 * 1)	50,000	(50000 * 1)
	Total variable costs	1,560,000		1,950,000
	Contribution margin	840,000		1,050,000
	Less: Fixed costs:
	Fixed manufacturing overhead	400,000		400,000
	Fixed selling and administrative   expenses	60,000		60,000
	Total fixed costs	460,000		460,000
	Net opearting income	380,000		590,000
Req 2-a		Year 1	Working-Year 1	Year 2	Working-Year 2
	Direct materials	22.00		22.00
	Direct labor	14.00		14.00
	Variable   manufacturing overhead	2.00		2.00
	Fixed   manufacturing overhead	8.00	(400000 / 50000)	10.00	(400000 / 40000)
	Unit product   cost	46.00		48.00
Req 2-b	Absorption Costing   Income Statement
		Year 1	Working-Year 1	Year 2	Working-Year 2
	Sales	2,400,000	(40000 * 60)	3,000,000	(50000 * 60)
	Cost of goods   sold	1,840,000	(40000 * 46)	2,380,000	(10000*46) + (40000*48)
	Gross Margin	560,000		620,000
	Selling and   administrative expenses	100,000	(40000 * 1)+60000	110,000	(50000 * 1)+60000
	Net operating   income	460,000		510,000