O’Brien Company manufactures and sells one product. The following information pe
ID: 2341926 • Letter: O
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 98,000 units and sold 78,000 units. During its second year of operations, it produced 78,000 units and sold 93,000 units. In its third year, O’Brien produced 83,000 units and sold 78,000 units. The selling price of the company’s product is $77 per unit.
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.
Variable costs per unit: Manufacturing: Direct materials $26 Direct labor $14 Variable manufacturing overhead $5 Variable selling and administrative $2 Fixed costs per year: Fixed manufacturing overhead $570,000 Fixed selling and administrative expenses $120,000 Case 5-29 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2] The following information applies to the questions displayed below. O'Brien Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations: Variable costs per unit Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $26 $14 Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses $570,000 S120,000 During its first year of operations, O'Brien produced 98,000 units and sold 78,000 units. During its second year of operations, it produced 78,000 units and sold 93,000 units. In its third year, O'Brien produced 83,000 units and sold 78,000 units. The selling price of the company's product is $77 per unit.Explanation / Answer
Unit Product cost Year 1 45 (26+14+5) Year 2 45 (26+14+5) Year 3 45 (26+14+5) Variable costing Income Statement Year 1 Year 2 Year 3 Sales 6006000 7161000 6006000 Variable expense Direct material 2028000 2418000 2028000 Direct labor 1092000 1302000 1092000 Variable manufacturing overhead 390000 465000 390000 Total Variable expenses 3510000 4185000 3510000 Contribution margin 2496000 2976000 2496000 Fixed Expenses: Fixed manufacturing overhead 570000 570000 570000 Fixed selling and administrative expense 120000 120000 120000 Total fixed expense 690000 690000 690000 Net operating Income 1806000 2286000 1806000
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