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 | $ | 22 |
| Direct labor | $ | 18 |
| Variable manufacturing overhead | $ | 5 |
| Variable selling and administrative | $ | 4 |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $ | 320,000 |
| 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 operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $51 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 | Variable Costing | ||||
| a.) | Unit Product cost:- | Year 1 | Year 2 | ||
| Direct Material | 22.00 | 22.00 | |||
| Direct Labour | 18.00 | 18.00 | |||
| Variable manufacturing overhead | 5.00 | 5.00 | |||
| Total unit product cost | 45.00 | 45.00 | |||
| b.) | Income Statement | ||||
| Year 1 | Year 2 | ||||
| Sales | 20,40,000 | 25,50,000 | |||
| Less: Variable cost | |||||
| Direct material | -8,80,000 | -8,80,000 | |||
| Direct Labour | -7,20,000 | -7,20,000 | |||
| Variable manufacturing overhead | -2,00,000 | -2,00,000 | |||
| Opening Inventory | - | -4,50,000 | |||
| Variable Manufacturing Contribution | 2,40,000 | 3,00,000 | |||
| Less: Variable selling & administration | -1,60,000 | -2,00,000 | |||
| Contribution Margin | 80,000 | 1,00,000 | |||
| Less: Fixed Expenses | |||||
| Fixed Manufacturing Overhead | -3,20,000 | -3,20,000 | |||
| Fixed selling & administration | -60,000 | -60,000 | |||
| Net Income/(Loss) | -3,00,000 | -2,80,000 | |||
| 2.) | |||||
| a.) | Unit Product cost:- | Year 1 | Year 2 | ||
| Direct Material | 22.00 | 22.00 | |||
| Direct Labour | 18.00 | 18.00 | |||
| Variable manufacturing overhead | 5.00 | 5.00 | |||
| Fixed Manufacturing Overhead | 6.40 | 6.40 | |||
| Total unit product cost | 51.40 | 51.40 | |||
| b.) | Income Statement | ||||
| Year 1 | Year 2 | ||||
| Sales | 20,40,000 | 25,50,000 | |||
| Less: Cost of goods sold | |||||
| Direct material | -8,80,000 | -8,80,000 | |||
| Direct Labour | -7,20,000 | -7,20,000 | |||
| Variable Overhead | -2,00,000 | -2,00,000 | |||
| Fixed Manufacturing Overhead | -2,56,000 | -3,20,000 | |||
| ( 320,000 X 40,000 / 50,000 ) | |||||
| Opening Inventory | - | -5,14,000 | |||
| Gross Margin | -16,000 | -84,000 | |||
| Less: Variable selling & administration | -1,60,000 | -2,00,000 | |||
| Less: Fixed Selling & administration | -60,000 | -60,000 | |||
| Net Income/(Loss) | -2,36,000 | -3,44,000 | |||
| 3..) | Reconciliation between variable & absorption costing:- | ||||
| Particulars | Year 1 | Year 2 | |||
| Net Income/(loss) as per Variable Costing | -3,00,000 | -2,80,000 | |||
| Net Income/(loss ) as per absorption costing | -2,36,000 | -3,44,000 | |||
| Difference | -64,000 | 64,000 | |||
| Difference due to under absorption of fixed manufacturing overhead in absorption costing | -64,000 | - |
 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
$
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...
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...
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