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 Direct labor 14 Variable manufacturing overhead 3 Variable selling and administrative Fixed costs per year: 240,000 Fixed manufacturing overhead Fixed selling and administrative expenses 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. its second year of operations, it p sold 50,000 selling of the product is $56 per unit. Required: 1. Assume the company uses variable costing a. Compute the unit product cost for year 1 and year 2. Year 2 ear 1 Unit product cost

Answer 1

Compute the Variable costing Unit Product cost
				Year 1	Year 2
Direct Material				28	28
Direct labour				14	14
Variable Manufacturing overheads				4	4
Variable costing unit prroduct cost				46	46
Construct The Variable Costing Income Statement under FIFO
				YEAR 1		YEAR 2
Sales					2,240,000		2,800,000
Less: Variable cost
variable cost of goods sold					1840000		2300000
Variable selling expense					120,000		150,000
Total Variable cost					1960000		2450000
Contribution margin					280,000		350,000
Fixed expense:
Fixed Manufacturing overheads					240,000		240,000
Fixed selling expense					80,000		80,000
Net operating Income					-40,000		30,000
Construct The Absorption Costing Unit Product Cost
				Year 1	Year 2
Direct Material				28	28
Direct labour				14	14
Variable Manufacturing overheads				4	4
Fixed Manufacturing overheads				4.80	6.00
Absorption costing unit prroduct cost				50.80	52.00
Construct the Absorption Costing Income Statement Under FIFO
				Year 1	Year 2
Sales				$2,240,000	$2,800,000
Cost of Goods sold				2032000	2588000	(10000*50.80+40000*52)
Gross Margin				$208,000	$212,000
Selling and distribution expense				200,000	230,000
Net operating income				8,000	-18,000
Reconciliation Statement
				Year-1	Year-2
Net Income for the year as per Variable costing				-40000	30000
Add: Fixed mfg oh deferred(10000*4.80)				48000
Less: Fixed Mfg h released (10000*4.80)					-48000
Net Income as per absorption costing				8000	-18000