Question

Exercise 7.b Variable and Absorption Costing Unit Product costs and income statements (LUT 1. L07-2) 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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $380,000 $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 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 variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year. < Prev 2 of 5 !!! Next >

Answer 1

1a
Direct materials	10
Direct labor	7
Variable manufacturing overhead	3
Fixed manufacturing overhead	10		=380000/38000
Unit product cost	30
b
Absorption Costing Income Statement
Sales	1098000		=18000*61
Cost of goods sold	540000		=18000*30
Gross margin	558000
Selling and administrative expenses	344000		=290000+(18000*3)
Net operating income (loss)	214000
2a
Direct materials	10
Direct labor	7
Variable manufacturing overhead	3
Unit product cost	20
b
Variable Costing Income Statement
Sales		1098000	=18000*61
Variable expenses:
Variable Cost of goods sold	360000		=18000*20
Variable Selling and administrative expenses	54000		=18000*3
		414000
Contribution margin		684000
Fixed expenses:
Fixed manufacturing overhead	380000
Fixed Selling and administrative expenses	290000
		670000
Net operating income (loss)		14000