Question

Lynch Company manufactures and sells a single product. The following costs were incurred during t... Edit 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 $ 14 Direct labor $ 8 Variable manufacturing overhead $ 2 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 250,000 Fixed selling and administrative expenses $ 160,000 During the year, the company produced 25,000 units and sold 21,000 units. The selling price of the company’s product is $47 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.

Answer 1

1a
Direct materials	14
Direct labor	8
Variable manufacturing overhead	2
Fixed manufacturing overhead	10		=250000/25000
Unit product cost	34
b
Lynch Company
Absorption costing Income Statement
Sales	987000		=21000*47
Cost goods sold	714000		=21000*34
Gross margin	273000
Total selling and administrative expenses	202000		=160000+(21000*2)
Net operating income	71000
2a
Direct materials	14
Direct labor	8
Variable manufacturing overhead	2
Unit product cost	24
b
Lynch Company
Variable costing Income Statement
Sales		987000
Variable expenses:
Variable cost of goods sold	504000		=21000*24
Variable selling and administrative expenses	42000		=21000*2
		546000
Contribution margin		441000
Fixed expenses:
Fixed manufacturing overhead	250000
Fixed selling and administrative expenses	160000
		410000
Net operating income		31000