Lynch Company manufactures and sells a single product. The following costs were
ID: 2557005 • Letter: L
Question
Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:
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 $12 Direct labor Variable manufacturing overhead 1 1 Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $308,000 $218,00e During the year, the company produced 28,000 units and sold 15,000 units. The selling price of the company's product is $56 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year.Explanation / Answer
Unit Product cost under absorption costing
Unit Product cost under absorption costing
variable cost
12+6+1
19
fixed manufacturing cost per unit
308000/28000
11
cost of goods sold
19+11
30
Income statement using absorption costing
sales
15000*56
840000
less cost of goods sold
15000*30
450000
gross profit
390000
less marketing and adminitrative expenses
variable marketing and administrative expenses
15000*1
15000
fixed selling and administrative expenses
218000
net operating income
157000
Unit Product cost under variable costing
variable cost
12+6+1
19
Income statement using variable costing
sales
15000*56
840000
less variable cost of goods sold
15000*19
285000
gross contribution margin
555000
less variable selling and adminstrative expenses
15000*1
15000
contribution margin
15000*1
540000
Fixed manufacturing expenses
308000
fixed selling and administrative expenses
218000
net operating income
14000
Unit Product cost under absorption costing
Unit Product cost under absorption costing
variable cost
12+6+1
19
fixed manufacturing cost per unit
308000/28000
11
cost of goods sold
19+11
30
Income statement using absorption costing
sales
15000*56
840000
less cost of goods sold
15000*30
450000
gross profit
390000
less marketing and adminitrative expenses
variable marketing and administrative expenses
15000*1
15000
fixed selling and administrative expenses
218000
net operating income
157000
Unit Product cost under variable costing
variable cost
12+6+1
19
Income statement using variable costing
sales
15000*56
840000
less variable cost of goods sold
15000*19
285000
gross contribution margin
555000
less variable selling and adminstrative expenses
15000*1
15000
contribution margin
15000*1
540000
Fixed manufacturing expenses
308000
fixed selling and administrative expenses
218000
net operating income
14000
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