Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operation:

Variable costs per unit:

Manufacturing:

Direct Materials $11

Direct Labor $5

Variable manufacturing overhead $2

Fixed costs per year:

Fixed manufacturing overhead $350,000

Fixed selling and administration $260,000

During the year, the company produced 35,000 units and sold 25,000 units. The selling price of the company's product is $46 per unit.

I got the first part correct, I just can't figure out the seconds part.

2. Assume that the company uses variable costing:

a. Compute the unit product cost. Unit product cost is $18

2b.

Lynch Company

Variable Costing Income Statement

Sales

Variable expenses:

Variable cost of goods sold (correct) $???????

Not sure what to choose next. The options are as followed: Advertising, Beginning merchandise inventory, Commissinos, Depreciation, Ending merchandise inventory, Fixed manufacturing overhead, Fixed selling and administration expense, Indirect labor, Indirect materials, Purchases, Sales, Selling and administration expenses, Variable cost of goods sold, Variable selling and administration expense.

next is contribution margin

Fixed expenses:

Fixed manufacturing overhead

Fixed selling and administrationi expense

Not sure if anything else belongs.

Net operating income.

Answer 1

Req 2a:

Under variable costing, the unit product cost include only variable manufacturing cost. The Units product cost is computed as under:

Direct material cost per unit :                        $ 11 per unit        

Direct labour cost per unit:                            $ 5 per unit

Variable manufacturing overheads per unit: $2 per unit

Unit product cost under variable costing: $18 per unit

Req 2b: Income statemnet under Variable costing is as follows:

Income Statement
Sales revenue (25,000 units@46)				1150000
Less: variable cost
Variable cost of goods sold (25,000 units@18 per unit)				450000
Contribution margin				700,000
Less: Fixed cost
Fixed mnaufacturing overheads				350,000
Fixed selling and admin overheads				260,000
Net Operating income				90,000