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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $308,000 $218,000 During the year, the company produced 28,000 units and sold 15,000 units. The selling price of the company's product is $56 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. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2A Req 2B Prepare an income statement for the year. Assume that the company uses variable costing

Prepare income statement using variable costing

Answer 1

Solution:

Computation of Unit Product Cost - Variable Costing
Direct material	$12.00
Direct Labor	$6.00
Variable manufacturing overhead	$1.00
Unit product cost	$19.00

Income Statement - Variable Costing
Sales (15000*$56)		$8,40,000
Variable Costs:
Variable manufacturing Costs (15000*$19)	$2,85,000
Variable Selling and administrative expenses (15000*$1)	$15,000
Total Variable Costs		$3,00,000
Contribution Margin		$5,40,000
Fixed Expenses:
Fixed manufacturing overhead	$3,08,000
Fixed Selling & Administrative Expenses	$2,18,000
Total Fixed costs		$5,26,000
Net Operating Income		$14,000