Question

[The following information applies to the questions displayed below.]

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$	29
Direct labor	$	16
Variable manufacturing overhead	$	3
Variable selling and administrative	$	2
Fixed costs per year:
Fixed manufacturing overhead	$	580,000
Fixed selling and administrative expenses	$	150,000

During its first year of operations, O’Brien produced 95,000 units and sold 71,000 units. During its second year of operations, it produced 83,000 units and sold 102,000 units. In its third year, O’Brien produced 85,000 units and sold 80,000 units. The selling price of the company’s product is $71 per unit.

4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

Answer 1