8.00 points Walsh Company manufactures and sells one product. The following info

Question

8.00 points 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 $ 22 $ 10 $ 4 $ 3 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses $ 400,000 S 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 $56 per unit Required: 1. Assume the company uses variable costing: a Compute the unit product cost for year 1 and year 2. Year 1 Year 2 Unit product costS 36 b. Prepare an income statement for year 1 and year 2 Income Statement Year 1 Year 2 Variable expenses Total variable expenses Type here to search

Explanation / Answer

Answer 1-a Computation of unit product cost under variable costing Year 1 Year 2 Direct Material $22.00 $22.00 Direct Labour $10.00 $10.00 Variable Manufacturing Overhead $4.00 $4.00 Unit Product cost $36.00 $36.00 Answer 1-b Income statement under Variable Costing Walsh Company Income Statement   Year 1 Year 2 Sales $2,240,000 $2,800,000 Variable Expenses Cost of goods sold $1,440,000 $1,800,000 Selling and administrative expense $120,000 $150,000 Total Variable Expenses $1,560,000 $1,950,000 Contribution Margin $680,000 $850,000 Fixed Expenses Fixed Manufacturing Overheads $400,000 $400,000 Fixed Selling and administrative expense $90,000 $90,000 Total Fixed Expenses $490,000 $490,000 Net Operating Income (Loss) $190,000 $360,000 Answer 2-a Computation of unit product cost under absorption costing Year 1 Year 2 Direct Material $22.00 $22.00 Direct Labour $10.00 $10.00 Variable Manufacturing Overhead $4.00 $4.00 Fixed Manufacturing Overhead $8.00 $10.00 - Year 1 = $400000/50000 units produced - Year 2 = $400000/40000 units produced Unit Product cost $44.00 $46.00 Answer 2-b Income statement under absorption Costing Walsh Company Income Statement   Year 1 Year 2 Sales $2,240,000 $2,800,000 Cost of goods sold $1,760,000 $2,280,000 Gross Margin $480,000 $520,000 Selling and administrative expenses - Variable $120,000 $150,000 - Fixed $90,000 $90,000 Net Operating Income (Loss) $270,000 $280,000 Answer 3 Reconciliation of difference between Variable costing and absorption costing Year 1 Year 2 Variable costing net operating income (loss) $190,000 $360,000 Add : Fixed manufacturing overhead included in closing inventories $80,000 $0 Less :Fixed manufacturing overhead included in opening inventories $0 $80,000 Absorption costing net operating income (loss) $270,000 $280,000

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