Question
In: Accounting
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3] Walsh...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]
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 | $ | 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 operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $57 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
1 a.
| Year 1 | Year 2 | |
| Direct Material | 21 | 21 |
| Direct labour | 11 | 11 |
| Variable Manufacturing overheads | 4 | 4 |
| Variable costing unit product cost | 36 | 36 |
1 b.
| Year 1 | Year 2 | |
| Sales | 2280000 | 2850000 |
| Less: Variable cost | ||
| Variable cost of goods sold | 1440000 | 1800000 |
| Variable selling expense | 1,20,000 | 1,50,000 |
| Total Variable cost | 1560000 | 1950000 |
| Contribution margin | 720,000 | 900,000 |
| Fixed expense: | ||
| Fixed Manufacturing overheads | 320,000 | 320,000 |
| Fixed selling expense | 70,000 | 70,000 |
| Net operating Income | 330,000 | 510,000 |
2 a.
| Year 1 | Year 2 | |
| Direct Material | 21 | 21 |
| Direct labour | 11 | 11 |
| Variable Manufacturing overheads | 4 | 4 |
| Fixed Manufacturing overheads | 6.4* | 8** |
| Absorption costing unit prroduct cost | 42.4 | 44 |
* $320,000 / 50,000
** $320,000 / 40,000
2 b.
| Year 1 | Year 2 | |
| Sales | 2280000 | 2850000 |
| Cost of Goods sold | 1696000 | 2184000* |
| Gross Margin | 584000 | 666000 |
| Selling and distribution expense | 190000 | 220000 |
| Net operating income | 394000 | 446000 |
* 10,000 * $42.40 + 40,000 * $44
3.
| Absorption net income | 394,000 |
| Fixed manfacturing overheads in: | |
| Add: Opening inventory | 0 |
| Less: Ending inventory (10,000 * 6.4) | -64000 |
| Variable costing income | 330,000 |
ekkarill92 answered 2 years agoRelated Solutions
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3] Walsh...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
28
Direct
labor
$
16
Variable
manufacturing overhead
$
4
Variable selling
and administrative
$
3
Fixed costs per
year:
Fixed
manufacturing overhead
$
320,000
Fixed selling
and administrative expenses
$
100,000
During its first year...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3] Walsh...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
27
Direct labor
$
12
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...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3] Walsh...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2, LO6-3] 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 $ 27
Direct labor $ 12 Variable manufacturing overhead $ 4 Variable
selling and administrative $ 3 Fixed costs per year:
Fixed manufacturing overhead $ 240,000 Fixed selling and
administrative expenses $ 90,000 During its first year...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3] Walsh...
Exercise 6-9 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
30
Direct labor
$
14
Variable manufacturing overhead
$
6
Variable selling and administrative
$
5
Fixed costs per year:
Fixed manufacturing overhead
$
240,000
Fixed selling and administrative expenses
$
90,000
During its first year...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product
Costs and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
16
Variable manufacturing overhead
$
4
Variable selling and administrative
$
3
Fixed costs per year:
Fixed manufacturing overhead
$
240,000
Fixed selling and administrative expenses
$
90,000
During its first...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product
Costs and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
14
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...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]...
Exercise 6-9 (Algo) Variable and Absorption Costing Unit Product
Costs and Income Statements [LO6-1, LO6-2, LO6-3]
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
$
17
Variable manufacturing overhead
$
2
Variable selling and administrative
$
1
Fixed costs per year:
Fixed manufacturing overhead
$
400,000
Fixed selling and administrative expenses
$
80,000
During its first...
Exercise 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2] Lynch Company...
Exercise 6-6 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2]
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
$
11
Direct labor
$
3
Variable manufacturing
overhead
$
1
Variable selling and
administrative
$
1
Fixed costs per year:
Fixed manufacturing
overhead
$
330,000
Fixed selling and administrative
expenses
$
240,000
During the year, the company produced...
Exercise 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2] Lynch Company...
Exercise 6-6 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO6-1, LO6-2]
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
$ 13
Direct labor
$ 5
Variable
manufacturing overhead
$ 1
Variable selling
and administrative
$ 1
Fixed costs per
year:
Fixed
manufacturing overhead
$
320,000
Fixed
selling and administrative
$
230,000
During the year, the company...
Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh...
Exercise 7-9 Variable and Absorption Costing Unit Product Costs
and Income Statements [LO7-1, LO7-2, LO7-3]
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
$
11
Variable manufacturing overhead
$
3
Variable selling and administrative
$
2
Fixed costs per year:
Fixed manufacturing overhead
$
320,000
Fixed selling and administrative expenses
$
50,000
During its first year...
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