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		$ 22
Direct labor		$ 10
Variable manufacturing overhead		$ 6
Variable selling and administrative		$ 5
Fixed costs per year:
Fixed manufacturing overhead	$	320,000
Fixed selling and administrative expenses	$	100,000

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 $54 per unit.

Required 1. Assume the company uses variable costing a Compute the unit product cost for year 1 and year:2 Year 1 Year 2 Unit product cost b. Prepare an income statement for year 1 and year 2 Walsh Company Income Statement Year 1 Year 2 Variable expenses Total variable expenses Fixed expenses Total fixed expenses Net operating income (loss)

Answer 1

Ans 1a Year-1 Year-2 Direct materials Direct labor Variable overhead-Manufacturing Per unit cost 22.00 10.00 6.00 38.00 22.00 10.00 6.00 38.00 Ans 1b Year-2 Variable Costing Income Statement Sales revenue Less variable expenses: Year-1 2,160,000.00 2,700,000.00 Variable cost of goods sold Variable selling and admin. 1,520,000.00 1,900,000.00 200,000.00 1,720,000.00 250,000.00 2,150,000.00 550,000.00 Contribution margin Less fixed expenses: 440,000.00 Fixed manufacturing overhead Fixed selling and admin 320,000.00 320,000.00 100,000.00 420,000.00 100,000.00 420,000.00 Net income 20,000.00 130,000.00 Ans 2 a Year-1 Year-2 Direct materials Direct labor Variable overhead-Manufacturing Fixed overhead per unit-Manu. Per unit cost 22.00 10.00 6.00 6.40 44.40 22.00 10.00 6.00 8.00 46.00

Year-2 Absorption Income Statement Sales revenue Cost of goods sold Year-1 2,160,000.00 2,700,000.00 Beginning inventory Cost of goods manufactured Goods available for sale Less ending inventory Cost of goods sold 2,220,000.00 2,220,000.00 444,000.00 444,000.00 1,840,000.00 2,284,000.00 1,776,000.00 384,000.00 300,000.00 84,000.00 2,284,000.00 416,000.00 350,000.00 66,000.00 Gross margin Selling and admin. expenses Net income Ans 3 Reconciliation Absorption net income Fixed manufacturing costs in 84,000.00 66,000.00 Add opening inventory ending inventory 64,000.00 Less (10000x 6.4) 64,000.00 Variable costing net income 20,000.00 130,000.00