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 $6 $9 $3 $ 4 Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative $ 300,000 $190,000 During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit Required: 1. Assume that the company uses absorption costing a. Compute the unit product cost Unit product cost 30: b. Prepare an income statement for the year Lynch Company Absorption Costing Income Statement S 1,000,000 Sales Cost of goods sold Gross margin Total selling and administrative expense Net operating income 1,000,000 S 1,000,000

Explanation / Answer

CACLULATION OF THE UNIT COST UNDER VARIABLE AND ABSORPTION COSTING Particulars Absorption Costing Variable Costing Direct Material Per unit $                            6.00 $                            6.00 Direct Labour Per Unit $                            9.00 $                            9.00 Vairable Manufacturing Overhead $                            3.00 $                            3.00 Fixed Manufacturing Overhead ($3000,000 / 25,000 units) $                          12.00 Cost of Production per unit $                          30.00 $                          18.00 ABOSRPTION COSTING INCOME STATEMENTS Absorption Costing Sales (20,000 units * $ 50) $                 10,00,000 Cost of Goods Sold Beginning inventory $                                 -   Cost of Goods Manufactured (25,000 units * 30.00) $                    7,50,000 Less: Ending Inventory (5,000 Units * 30.0) $                    1,50,000 Cost of Goods Sold $                    6,00,000 Gross Profit $                    4,00,000 Less : Selling and administrative Expenses Fixed Selling Expenses $                    1,90,000 Variable Selling Expenses(20,000 units * 4) $                       80,000 Net Income $                    1,30,000 VARIABLE COSTING INCOME STATEMENTS Variable Costing Sales (20,000 units * $ 50) $                 10,00,000 Cost of Goods Sold Beginning inventory $                                 -   Cost of Goods Manufactured (25,000 units * 18.00) $                    4,50,000 Less: Ending Inventory (5,000 Units * 18.0) $                       90,000 Cost of Goods Sold $                    3,60,000 Gross Profit $                    6,40,000 Less : Selling and administrative Expenses Fixed Manufacturing Overhead $                    3,00,000 Fixed Selling Expenses $                    1,90,000 Variable Selling Expenses(20,000 units * 4) $                       80,000 Net Income $                       70,000

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