Walsh Company manufactures and sells one product. The following Information pert

Question

Walsh Company manufactures and sells one product. The following Information pertalns to each of the company's first two years of operations: Variable costs per unit: Manufacturing 27 15 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses $328,80e $ 7e,80e 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 $57 per unit. Requlrec 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. Reconclle the difference between varlable costing and absorption costing net operating Income In Year 1. Complete this question by entering your answers in the tabs below Req 1A Req 1B Req 2A Req 2B Req 3 Assume the company uses variable costing. Compute the unit product cost for year 1 and year 2. Year 1 Year 2 Unit product cost

Explanation / Answer

1 The unit product cost under variable costing is computed as follows:   Direct materials $ 27   Direct labor 15   Variable manufacturing overhead 4   Variable costing unit product cost $ 46 Unit product cost for both the years is $46/unit 2 Income Statement under Variable costing Method Year 1 Year 2 40000 units sold 50000 units sold Sales (@ $57 per unit for 40000,50000 units) $ 2,280,000 2,850,000 variable expense VARIABLE COGS $46 p.u [27+15+4] for 40000,50000 unit 1,840,000 2,300,000 variable selling & adm cost [$3 p.u for 40000,50000 unit] 120,000 150000 Total Variable Exp 1,960,000 2,450,000 Conribution Margin 320,000 400,000 Fixed Manufacturing overhead 320,000 320,000 Fixed Selling & Man. O/h $ 70000 70000 net operating income -70,000 10,000 3 Year 1 Year 2 Direct materials $        27.00          27.00 Direct labor        15.00          15.00 Variable manufacturing overhead          4.00            4.00 Fixed manufacturing overhead ($320,000 ÷ 50,000 units) (320000/40000)          6.40            8.00 Absorption costing unit product cost $        52.40          54.00 Year 1 Year 2   Units in beginning inventory 0 10000   + Units produced 50000 40000    Units sold 40000 50000   = Units in ending inventory 10000 0   Income Statement under Absorption costing Method Year 1 Year 2 40000 units sold 50000 units sold Sales (@ $57 per unit for 40000,50000 units) $ 2,280,000 2,850,000 variable expense VARIABLE COGS $ 52.4 p.u for 40000,$ 54 p.u. for 50000 unit 2,096,000 2,700,000 Gross margin 184,000 150,000 Selling and administrative expenses* ($3*40000+70000)($3*50000+70000) 190,000 220,000 net operating income -6,000 -70,000 * $3 per unit variable; $70,000 fixed each year. Reconcililation of the absorption costing and the variable costing net operating income Variable costing net income -70,000 10,000 Add(deduct) fixed manufacturing overhaed defered in (realesed from)inventory under absorption costing 64000 -40000 Absorption costing net income -6,000 70,000 Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (10,000 units × $6.4 per unit in Year 1; 10,000 units × $8 per unit in Year 2) = $1000,000

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