Question

In: Accounting

2.Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s...

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 $ 12
Direct labor $ 5
Variable manufacturing overhead $ 1
Variable selling and administrative $ 1
Fixed costs per year:
Fixed manufacturing overhead $ 360,000
Fixed selling and administrative $ 270,000

During the year, the company produced 36,000 units and sold 18,000 units. The selling price of the company’s product is $55 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Make an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Make an income statement for the year.

Solutions

Expert Solution

1. ABSORPTION COSTING

a. Unit Product Cost

Particulars $
Direct Materials 12
Direct labor 5
Variable Manufacturing overhead 1
Fixed Manufacturing overhead ($360,000 / 36,000 Units) 10
Total Unit Product Cost 28

b. Income Statement

2. VARIABLE COSTING

a. Unit Product Cost

Particulars $
Direct Materials 12
Direct labor 5
Variable Manufacturing overhead 1
Variable selling and administrative 1
Total Unit Product Cost 19

b. Income Statement

All the best...


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