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: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 11 $ 5 $ 2 $2 Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $350,000 $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. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. Unit product cost

Explanation / Answer

Solution: Absorption Costing:

Calculation of the unit product cost:

Income statement under absorption costing:

Solution: Variable Costing:

Calculation of unit product cost:

Income statement under Variable costing:

Particulars Amount ($) Direct materials 11 Direct labor 5 Variable manufacturing overhead 2 Total variable costs 18 Fixed manufacturing overhead (350000/35000) 10 Absorption costing unit product cost 28

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