Walsh Company manufactures and sells one product. The following information pert
ID: 2563094 • Letter: W
Question
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
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 $53 per unit.
Prepare an income statement for year 1 and year 2.
Compute the unit product cost for year 1 and year 2. (Round your answer to 2 decimal places.)
Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places)
Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
Explanation / Answer
1)
a)
Computation of Variable Unit Product Cost
Particulars
Amount
Direct Material
$ 27
Direct Labor
$ 14
Variable Manufacturing overhead
$ 2
Total Variable Unit Product Cost per Unit
$ 43
b)
Income Statement Under Variable Costing
Particulars
Year1
Year2
Total
Sales in units
40,000
50,000
90,000
Selling Price
$ 53
$ 53
$ 53
Sales in dollars
$ 2,120,000
$ 2,650,000
$ 4,770,000
Less: Variable Cost of Goods Sold @ $43
$ 1,720,000
$ 2,150,000
$ 3,870,000
Variable selling and administrative @ 1
$ 40,000
$ 50,000
$ 90,000
Total Variable Cost
$ 1,760,000
$ 2,200,000
$ 3,960,000
Contribution Margin
$ 360,000
$ 450,000
$ 810,000
Fixed Cost
Fixed manufacturing overhead
$ 320,000
$ 320,000
$ 640,000
Fixed selling and administrative expenses
$ 80,000
$ 80,000
$ 160,000
Total Fixed Cost
$ 400,000
$ 400,000
$ 800,000
Net Operating income /(loss)
$ (40,000)
$ 50,000
$ 10,000
2)
a)
Computation of Unit Product cost under Absorption Costing
Particulars
Year1
Year2
Direct Material
$ 27.00
$ 27.00
Direct Labor
$ 14.00
$ 14.00
Variable Manufacturing overhead
$ 2.00
$ 2.00
Fixed Manufacturing Overhead
year 1:$320,000/50,000
$ 6.40
year 2: $320,000/40,000
$ 8.00
Total Unit Product Cost
$ 49.40
$ 51.00
Ending Inventory in year1
Particulars
Units
No of Units Produced
50,000
No of units sold
40,000
Ending Inventor in year1
10,000
Computation of Cost of Goods Sold
Cost of Goods Sold
Amount
Year1:40,000 x $49.40
$ 1,976,000
Year 2:
from beginning inventory
10,000 x $49.40
$ 494,000
40,000 x $51.00
$ 2,040,000
Cost of Goods Sold in year2
$ 2,534,000
b)
Income Statement Under Absorption Costing
Particulars
Year1
Year2
Total
Sales in units
40,000
50,000
90,000
Selling Price
$ 53
$ 53
$ 53
Sales in dollars
$ 2,120,000
$ 2,650,000
$ 4,770,000
Less: Cost of Goods Sold
Year 1: 40,000 un ts x $49.40
$ 1,976,000
Year 2: unsold of year 1 (10,000 x $49.40)
$ 494,000
year 2: 40,000 units produced in year 2 x $51.00
$ 2,040,000
Cost of Good Sold
$ 1,976,000
$ 2,534,000
$ 4,510,000
Gross Profit
$ 144,000
$ 116,000
$ 260,000
Less: Selling and administrative Cost
Variable @ $1
$ 40,000
$ 50,000
$ 90,000
Fixed
$ 80,000
$ 80,000
$ 160,000
Total Selling and administrative Cost
$ 120,000
$ 130,000
$ 250,000
Net Operating income /(loss)
$ 24,000
$ (14,000)
$ 10,000
c)
Reconciliation of Variable vs Absorption Costing Net operating income
Year 1
Year 2
Net Operating income under variable Costing
$ (40,000)
$ 50,000
Add: Fixed Cost manufacturing overhead differed in inventory
(10,000 units x$6.40)
$ 64,000
$ 64,000
Net Operating income under Absorption Costing
$ 24,000
$ (14,000)
Computation of Variable Unit Product Cost
Particulars
Amount
Direct Material
$ 27
Direct Labor
$ 14
Variable Manufacturing overhead
$ 2
Total Variable Unit Product Cost per Unit
$ 43
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