Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: $ 11 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 $264,000 $174,000 During the year, the company produced 22,000 units and sold 18.000 units. The selling price of the company's product is $45 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 varlable 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 Reg 1B Req 2A Reg 28 Prepare an income statement for the year. Assume that the company uses variable costing. Lynch Company Variable Costing Income Statement Req 2A Reg 2B )

Answer 1

1. Assuming that Company uses Absorption Costing:-

a. Computing the unit product cost:-

	Absorption Costing
Direct Materials	$11
Direct Labor	$5
Variable Manufacturing Overhead	$2
Fixed Manufacturing Overhead	$12
Total Unit Product Cost	$30

Fixed Manufacturing Overhead per Unit=(Fixed Manufacturing Overhead/Total units manufactured)

=($264,000/22,000 units)

=$12

b. Preparing Income Statement for the Year:-

Lynch Company

Absorption Costing Income Statement

For the Year Ended of First Year

Accounts	Amount	Amount
Sales Revenue (18,000 units ×$45)	$810,000
Less:- Cost of Goods Sold (18,000 units ×$30)	(540,000)
Gross Income		$270,000
Less:- Operating Expenses
Variable Selling and Administrative Expenses (18,000 units ×$2)	$36,000
Fixed Selling and Administrative Expenses	174,000
Total Operating Expenses		$(210,000)
Operating Income		$60,000

2. Assuming that the Company uses Variable Costing:-

a. Computing the Unit Product Cost:-

	Variable Costing
Direct Materials	$11
Direct Labor	$5
Variable Manufacturing Overhead	$2
Total Unit Product Cost	$18

b. Preparing the Income Statement for the Year:-

Lynch Company

Variable Costing Income Statement

For the Year Ended of First Year

Accounts	Amount	Amount
Sales Revenue (18,000 units ×$45)		$810,000
Less:- Variable Expenses
Variable Cost of Goods Sold (18,000 units × $18)	$324,000
Variable Selling and Administrative Expenses (18,000 units ×$2)	36,000
Total Variable Expenses		$(360,000)
Contribution Margin		$450,000
Less:- Fixed Expenses
Fixed Manufacturing Overhead	$264,000
Fixed Selling and Administrative Expenses	174,000
Total Fixed Expenses		$(438,000)
Operating Income		$12,000

Note:- Fixed or Variable Selling and Administrative Expenses not considered at the time of computing Unit Product Cost.