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 $ 15 $ 5 $ 1 $ 1 $ 286,000 $ 196,000 During the year, the company produced 26,000 units and sold 22,000 units. The selling price of the company's product is $46 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. Unit product cost $ 33 Prepare an income statement for the year. Lynch Company Absorption Costing Income Statement . $ 0

Answer 1

absorption costing considers fixed manufacturing overhead as unit cost

unit cost

direct material	$15
labor	$5
variable manufacturing overhead	$1
fixed manufacturing overhead	$11	[286000/26000units]
unit cost	32$

2.income statment

sales	1012000	[22000*46]
less cost of goods sold	704000	[22000*32]
gross profit	308000	[1012000-704000]
less: selling and administrative expense	218000	[196000+22000*1]
Net profit	90000$	[308000-218000]

3.variable costing considers fixed manufacturing cost as period cost hence it does not form part of unit cost

material	15
labor	5
variable overhead	1
unit product cost	21$

4. income statement -variable costing

Revenue		1012000
variable expenses
direct material	330000[22000*15]
labor	110000[22000*5]
variable manufacturing overhead	22000[22000*1]
variable selling and administrative expense	22000
contribution margin	[1012000-330000-110000-22000-22000]	528000
fixed expenses
fixed manufacturing overhead		286000
fixed selling and administrative expense		196000
Net income(Loss)	[528000-286000-196000]	46000$