Lynch Company manufactures and sells a single product. The following costs were
ID: 2397378 • Letter: L
Question
Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:
During the year, the company produced 30,000 units and sold 23,000 units. The selling price of the company’s product is $43 per unit.
Required:
1. Assume that the company uses absorption costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
2. Assume that the company uses variable costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
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 $ 240,000Explanation / Answer
Construct The Absorption Costing Unit Product Cost Year 1 Direct Material 11 Direct labour 3 Variable Manufacturing overheads 1 Fixed Manufacturing overheads 11.00 (330000/30000 units) Absorption costing unit prroduct cost 26.00 Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $989,000 Cost of Goods sold 598000 Gross Margin $391,000 Selling and distribution expense 263,000 Net operating income 128,000 Compute the Variable costing Unit Product cost Year 1 Direct Material 11 Direct labour 3 Variable Manufacturing overheads 1 Variable costing unit prroduct cost 15 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 989,000 Less: Variable cost variable cost of goods sold 345,000 Variable selling expense 23,000 368,000 Contribution margin 621,000 Fixed expense: Fixed Manufacturing overheads 330,000 Fixed selling expense 240,000 Net operating Income 51,000
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