Walsh Company manufactures and sells one product. The following information pert
ID: 2333803 • 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 $51 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 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 12 Variable manufacturing overhead $ 2 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 400,000 Fixed selling and administrative expenses $ 90,000Explanation / Answer
unit product cost a. Year 1 Year 2 unit product cost 39 39 notes Direct materials 25 direct labor 12 Variable manufacturing overhead 2 unit product cost 39 b. income statement year 1 year 2 Sales (40000*51);(50000*51) 2040000 2550000 Variable expenses Variable cost of goods sold 1560000 1950000 Variable selling and adm 40000 50000 total variable expense 1600000 2000000 Contribution margin 440000 550000 Fixed expense Fixed manufacturing overhead 400,000 400,000 Fixed selling & adm expense 90,000 90,000 total fixed expense 490,000 490,000 Net income -50,000 60,000 2) unit product cost a) Year 1 Year 2 unit product cost 47 49 notes year 1 year 2 Direct materials 25 25 direct labor 12 12 Variable manufacturing overhead 2 2 FMOH (400,000/50,000)….(400,000/40000) 8 10 unit product cost 47 49 b) income statement year 1 year 2 Sales 2040000 2550000 cost of goods sold 1880000 2430000 Gross margin 160000 120000 Selling and administrative expense 130,000 140,000 Net income 30,000 -20000 cost of goods sold for year 2 (10,000*47+40000*49) 3) Reconcilaition year 1 year 2 Variable costing net operating income (loss) -50,000 60,000 add:Deferrred fixed overhead in ending inventory (10000*8) 80,000 less:Fixed overhead realeased in beginning inventory(10000*8) -80,000 Absoption costing net operatin income (loss) 30,000 -20,000
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