Lynch Company manufactures and sells a single product. The following costs were

Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Variable costs per unit Manufacturing $ 10 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $3 $ 3 Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative $ 380,000 $290,000 During the year, the company produced 38,000 units and sold 18,000 units. The selling price of the company's product is $61 per unit. Required 1. Assume that the company uses absorption costing a. Compute the unit product cost. Unit product cost b. Prepare an income statement for the year Lynch Company Absorption Costing Income Statement

Explanation / Answer

1 Absorption costing Product cost Direct material 10 Direct labor 7 Variable manufacturing overhead 3 Fixed manufacturing 10 (380000/38) Total product cost 30 Units produced 38000 Units sold 18,000 Income statement Sales revenue 1098000 cost of goods sold Beginning inventory 0 cost of goods manufactured 1140000 Add Goods available for sale 1140000 Ending inventory 600000 (20000*30) Less Cost of goods sold 540000 Gross profit 558000 Selling and admin expenses Less Variable marketing and admin expense 54000 (3*18000) Fixed marketing and selling expense 290000 Total Selling and admin expenses 344000 Net operating income 214000 2 Variable costing Product cost Direct material 10 Direct labor 7 Variable manufacturing overhead 3 Variable manufacturing cost 20 Units produced 38000 Units sold 18,000 Income statement Sales revenue 1098000 Less Variable expense Variable manufacturing cost 360000 (20*18000) Variable selling and admin cost 54000 (3*18000) Total variable expense 414000 Contribution margin 684000 Less Fixed cost Fixed manufacturing expense 380000 Fixed Selling and Admin expense 290000 Total fixed expenses 670000 Net operating income 14000

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