21. Lynch Company manufactures and sells a single product. The following costs w
ID: 2460320 • Letter: 2
Question
21. Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Variable costs per unit Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 14 $3 $ 1 Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative $ 290,000 $ 200,000 During the year, the company produced 29,000 units and sold 22,000 units. The selling price of the company's product is $42 per unit Required: 1. Assume that the company uses absorption costing a. Compute the unit product cost. Unit product costExplanation / Answer
1.
a.
Company uses absorption costing. It means that fixed overhead cost will also be considered in calculation of unit cost of production.
Total Variable cost per unit = Direct Material cost per unit + direct labor cost per unit + variable manufacturing overhead cost per unit + variable selling and admin expenses cost per unit
Total Variable cost per unit =14+3+1+1 = $19/ unit
Total Fixed cost = Fixed manufacturing overhead + fixed selling and administrative
Total Fixed cost = 290000 + 200000 = $490000
Production of total units = 29000 units
Total cost of production = Total variable cost + total fixed cost
Total cost of production = Variable cost per unit* no of units produced + total fixed cost
Total cost of production = 19*29000 + 490000 = $1041000
Thus,
Unit product cost = Total cost of production / No. of units produced = 1041000/29000
Unit product cost = $35.896 / unit
b.
Income Statement
Particulars
Amount ($)
Total Sales
924000
Total cost of production
789712
Net Income
134288
Total sales = total units sold * unit price = 22000*42 = $924000
Total cost of production = total units sold * unit cost of production = 22000*35.896 = $789712
Net income = Total sales – total cost of production = 924000 – 789712 = $134288
Pl. repost other questions for their proper answers!
Income Statement
Particulars
Amount ($)
Total Sales
924000
Total cost of production
789712
Net Income
134288
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