Question

6. Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

a IMG_0322.jpg Search ich Company manufactures and sells a single product. The following costs were incurred during the company's first year of erations: ariable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufactur 7 overhead Fixed selling and administrative is is as is NNUR $403,000 $313,000 During the year, the company produced 31,000 units and sold 26,000 units. The selling price of the company's product is $55 pe 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.

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.

Answer 1

1.

a.

Unit product cost = $12 + $9 + $2 + ($403,000 / 31,000) = $36

b.

Sales (26,000 X $55)	$1,430,000
Cost of goods sold (26,000 X $36)	$936,000
Gross profit	$494,000
Selling and administrative expense [(26,000 X $2) + $313,000]	$365,000
Net operating income	$129,000

2.

a.

Unit product cost = $12 + $9 + $2 = $23

b.

Variable cost per unit = $12 + $9 + $2 + $2 = $25

Sales	$1,430,000
Variable expense (26,000 X $25)	$650,000
Contribution margin	$780,000
Fixed expense ($403,000 + $313,000)	$716,000
Net operating income	$64,000