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	$	10
Direct labor	$	7
Variable manufacturing overhead	$	3
Variable selling and administrative	$	3
Fixed costs per year:
Fixed manufacturing overhead	$	380,000
Fixed selling and administrative	$	290,000

During the year, the company produced 38,000 units and sold 18,000 units. The selling price of the company’s product is $61 per unit.

1. Prepare an income statement for the year. Assume that the company uses variable costing.

Answer 1

Particulars	Amount
Sales (18,000 X $61)	$1,098,000
Variable expense:
Direct material	$180,000
Direct labour	$126,000
Variable manufacturing overhead	$54,000
Variable selling and administrative	$54,000
Total variable cost	$414,000
Contribution margin	$684,000
Fixed expense:
Fixed manufacturing overhead	$380,000
Fixed selling and administrative	$290,000
Net operating income	$14,000