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

Question

Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations Variable costs per unit: Manufacturing: 21 10 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $320,000 $ 90,000 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 $52 per unit. Required 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 T and Year 2 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1

Explanation / Answer

unit product cost a. Year 1 Year 2 unit product cost 37 37 notes Direct materials 21 direct labor 10 Variable manufacturing overhead 6 unit product cost 37 b. income statement year 1 year 2 Sales (40000*52);(50000*52) 2080000 2600000 Variable expenses Variable cost of goods sold 1480000 1850000 Variable selling and adm 200000 250000 total variable expense 1680000 2100000 Contribution margin 400000 500000 Fixed expense Fixed manufacturing overhead 320,000 320,000 Fixed selling & adm expense 90,000 90,000 total fixed expense 410,000 410,000 Net income -10,000 90,000 2) unit product cost a) Year 1 Year 2 unit product cost 43.4 45 notes year 1 year 2 Direct materials 21 21 direct labor 10 10 Variable manufacturing overhead 6 6 FMOH (320,000/50,000)….(320,000/40000) 6.4 8 unit product cost 43.4 45 b) income statement year 1 year 2 Sales 2080000 2600000 cost of goods sold 1736000 2234000 Gross margin 344000 366000 Selling and administrative expense 290,000 340,000 Net income 54,000 26000 cost of goods sold for year 2 (10,000*43.4+40000*45) 3) Reconcilaition year 1 year 2 Variable costing net operating income (loss) -10,000 90,000 add:Deferrred fixed overhead in ending inventory (10000*6.4) 64,000 less:Fixed overhead realeased in beginning inventory(10000*6.4) -64,000 Absoption costing net operatin income (loss) 54,000 26,000

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