Question
In: Accounting
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Direct materials | $ | 21 |
| Direct labor | $ | 18 |
| Variable manufacturing overhead | $ | 5 |
| Variable selling and administrative | $ | 4 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 400,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $52 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
Solutions
Expert Solution
| WORKING NOTES : 1 | Year 1 | Year 2 | |
| beginning Inventory | - | 10,000 | |
| Unit Produced = | 50,000 | 40,000 | |
| Unit Sold = | 40,000 | 50000 | |
| Closing Stock | 10,000 | - | |
| Solution: 1(A) | |||
| CALCUALTION OF cost of production units by using Variable Costing for year 1 & Year 2 | |||
| Particulars | Variable Costing Amount | ||
| Direct Materials | $ 21.00 | ||
| Direct Labor | $ 18.00 | ||
| Variable Manufacturing Overhead | $ 5.00 | ||
| Fixed Manufacturing Overhead (Not Taken) | $ - | ||
| Cost of Production per unit | $ 44.00 | ||
| Answer = Unit Cost for Year 1 & Year 2 = $ 44.00 | |||
| Solution: 1(B) | |||
| VARIABLE COSTING INCOME STATEMENTS | Variable Costing | Variable Costing | |
| Particulars | Year 1 | Year 2 | |
| Sales | $ 20,80,000 | $ 26,00,000 | |
| (40,000 Units X $ 52) | (50,000 Units X $ 52) | ||
| Cost of Goods Sold | |||
| Beginning inventory (10,000 Units X $ 44) | $ - | $ 4,40,000 | |
| Cost of Goods Manufactured(50,000 Units X $ 44) (40,000 Units X $ 44) | $ 22,00,000 | $ 17,60,000 | |
| Ending inventory (10,000 Units X $ 44) | $ 4,40,000 | ||
| Cost of Goods Sold | $ 17,60,000 | $ 22,00,000 | |
| Variable Selling Expenses (40,000 X $ 4) ( 50,000 Units X $ 4) | $ 1,60,000 | $ 2,00,000 | |
| Gross Profit | $ 1,60,000 | $ 2,00,000 | |
| Less: Fixed Cost | |||
| Fixed Manufacturing overhead | $ 4,00,000 | $ 4,00,000 | |
| Fixed Selling Expenses | $ 70,000 | $ 70,000 | |
| Net Income | $ -3,10,000 | $ -2,70,000 | |
| Solution: 2(A) | |||
| CALCUALTION OF cost of production units by using Absorption Costing for year 1 & Year 2 | |||
| Particulars | Variable Costing Amount - Year 1 | Variable Costing Amount - Year 2 | |
| Direct Materials | $ 21.00 | $ 21.00 | |
| Direct Labor | $ 18.00 | $ 18.00 | |
| Variable Manufacturing Overhead | $ 5.00 | $ 5.00 | |
| Fixed Manufacturing Overhead $ 400,000 /50,000) ($400,000 / 40,000) | $ 8.00 | $ 10.00 | |
| Cost of Production per unit | $ 52.00 | $ 54.00 | |
| Answer = Unit Cost for Year 1 & Year 2 = $ 44.00 | |||
| Solution: 2(B) | |||
| ABOSRPTION COSTING INCOME STATEMENTS | Absorption Costing | Absorption Costing | |
| Particulars | Prior Year | Current Year | |
| Sales | $ 20,80,000 | $ 26,00,000 | |
| Cost of Goods Sold | |||
| Beginning inventory (10,000 Units X $ 52) | $ - | $ 5,20,000 | |
| Cost of Goods Manufactured(50,000 Units X $ 52) (40,000 Units X $ 52) | $ 26,00,000 | $ 20,80,000 | |
| Ending inventory (10,000 Units X $ 52) | $ 5,20,000 | $ - | |
| Cost of Goods Sold | $ 20,80,000 | $ 26,00,000 | |
| Gross Profit | $ - | $ - | |
| Less : Selling Expenses | |||
| Fixed general and administrative expenses | $ 70,000 | $ 70,000 | |
| Variable Selling Expenses (40,000 X $ 4) ( 50,000 Units X $ 4) | $ 1,60,000 | $ 2,00,000 | |
| Net Income | $ -2,30,000 | $ -2,70,000 | |
| SOLUTION = 3 | |||
| RECONCILIATION OF VARIABLE COSTING INCOME AND ABSOTPION COSTING INCOME | |||
| YEAR 1 | |||
| Net Income as per Absorption Costin |
 ekkarill92 answered 1 year agoRelated SolutionsWalsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
20
Direct labor
$
13
Variable manufacturing overhead
$
4
Variable selling and administrative
$
3
Fixed costs per year:
Fixed manufacturing overhead
$
320,000
Fixed selling and administrative expenses
$
70,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
29
Direct labor
$
15
Variable manufacturing overhead
$
3
Variable selling and administrative
$
2
Fixed costs per year:
Fixed manufacturing overhead
$
320,000
Fixed selling and administrative expenses
$
70,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
24
Direct labor
$
13
Variable manufacturing
overhead
$
5
Variable selling and
administrative
$
4
Fixed costs per year:
Fixed manufacturing
overhead
$
240,000
Fixed selling and administrative
expenses
$
50,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
21
Direct labor
$
14
Variable manufacturing
overhead
$
2
Variable selling and
administrative
$
1
Fixed costs per year:
Fixed manufacturing
overhead
$
240,000
Fixed selling and administrative
expenses
$
80,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
21
Direct labor
$
11
Variable manufacturing
overhead
$
5
Variable selling and
administrative
$
4
Fixed costs per year:
Fixed manufacturing
overhead
$
320,000
Fixed selling and administrative
expenses
$
90,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
25
Direct labor
$
13
Variable manufacturing overhead
$
3
Variable selling and administrative
$
2
Fixed costs per year:
Fixed manufacturing overhead
$
320,000
Fixed selling and administrative expenses
$
90,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations: Variable costs per unit: Manufacturing: Direct
materials $ 22 Direct labor $ 13 Variable manufacturing overhead $
5 Variable selling and administrative $ 4 Fixed costs per year:
Fixed manufacturing overhead $ 240,000 Fixed selling and
administrative expenses $ 60,000 During its first year of
operations, Walsh produced 50,000 units and sold 40,000 units.
During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...
Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct
materials
$ 25
Direct
labor
$ 18
Variable
manufacturing overhead
$ 4
Variable selling and
administrative
$ 3
Fixed costs per year:
Fixed manufacturing overhead
$
240,000
Fixed selling and administrative
expenses
$
60,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
25
Direct labor
$
10
Variable manufacturing overhead
$
4
Variable selling and administrative
$
3
Fixed costs per year:
Fixed manufacturing overhead
$
400,000
Fixed selling and administrative expenses
$
70,000
During its first year of operations, Walsh produced 50,000 units
and sold 40,000 units. During its second year of...
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s...Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of
operations: Variable costs per unit: Manufacturing: Direct
materials $ 23 Direct labor $ 11 Variable manufacturing overhead $
2 Variable selling and administrative $ 1 Fixed costs per year:
Fixed manufacturing overhead $ 240,000 Fixed selling and
administrative expenses $ 100,000 During its first year of
operations, Walsh produced 50,000 units and sold 40,000 units.
During its second year of...
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