O’Brien Company manufactures and sells one product. The following information pe

Question

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 93,000 units and sold 72,000 units. During its second year of operations, it produced 78,000 units and sold 94,000 units. In its third year, O’Brien produced 80,000 units and sold 75,000 units. The selling price of the company’s product is $78 per unit.

Variable costs per unit: Manufacturing: Direct materials $29 Direct labor $18 Variable manufacturing overhead $5 Variable selling and administrative $1 Fixed costs per year: Fixed manufacturing overhead $520,000 Fixed selling and administrative expenses $160,000 Required 1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first: a. Compute the unit product cost for Year 1, Year 2, and Year 3. Product Year 1 S Year 2 Year 3 15 13 15

Explanation / Answer

a) Unit product cost :

Variable costing income statement :

Year 1 Year 2 Year 3 Direct material 29 29 29 Direct labour 18 18 18 Variable manufacturing overhead 5 5 5 Unit product cost 52 52 52

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