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

During its first year of operations, O’Brien produced 91,000 units and sold 71,000 units. During its second year of operations, it produced 76,000 units and sold 91,000 units. In its third year, O’Brien produced 88,000 units and sold 83,000 units. The selling price of the company’s product is $79 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.

• 	O’Brien Company Absorption Costing Income Statement Year 1 Year 2 Year 3 0 0 0 $0 $0 $0

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

During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company�s product is $73 per unit.

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

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 $84 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.

Assume the company uses variable costing. Prepare an income statement for Year 1 and Year 2.

Problem 6-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2]

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

During its first year of operations, Haas produced 50,000 units and sold 50,000 units. During its second year of operations, it produced 65,000 units and sold 40,000 units. In its third year, Haas produced 30,000 units and sold 55,000 units. The selling price of the company’s product is $48 per unit.

Required:

1. Compute the company’s break-even point in unit sales.

2. Assume the company uses variable costing:

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.

3. Assume the company uses absorption costing:

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.

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

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

During its first year of operations, O’Brien produced 98,000 units and sold 76,000 units. During its second year of operations, it produced 76,000 units and sold 93,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $78 per unit.

2. Assume the company uses variable 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):

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.

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

During its first year of operations, O’Brien produced 98,000 units and sold 76,000 units. During its second year of operations, it produced 76,000 units and sold 93,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $78 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest 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.

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

During its first year of operations, O’Brien produced 98,000 units and sold 76,000 units. During its second year of operations, it produced 76,000 units and sold 93,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $78 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. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

Haas 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 $20   
      Direct labor $12   
      Variable manufacturing overhead $3   
    Variable selling and administrative $1   
  Fixed costs per year:
    Fixed manufacturing overhead $ 390,000   
    Fixed selling and administrative expenses $ 210,000   

During its first year of operations, Haas produced 50,000 units and sold 50,000 units. During its second year of operations, it produced 65,000 units and sold 40,000 units. In its third year, Haas produced 30,000 units and sold 55,000 units. The selling price of the company’s product is $48 per unit.

  
Required:

1. Compute the company’s break-even point in units sold.

2. Assume the company uses variable costing:

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.

3. Assume the company uses absorption costing:

a.

Compute the unit product cost for year 1, year 2, and year 3. (Round your intermediate and final answers to 2 decimal places.)

b.

Prepare an income statement for year 1, year 2, and year 3. (Round your intermediate calculations to 2 decimal places.)

Interest during Construction

Dexter Construction Corporation is building a student condominium complex; it started construction on January 1, Year 1. Dexter borrowed $1 million specifically for the project by issuing a 10%, 5-year, $1 million note, which is payable on December 31 of Year 3. Dexter also had a 12%, 5-year, $3 million note payable and a 10%, 10-year, $1.8 million note payable outstanding all year.

In Year 1, Dexter incurred costs as follows:

Calculate Dexter's capitalized interest on the student condominium complex for Year 1.

Required: