O\'Brien Company namufactures and sells one product.The following information pe
ID: 2513650 • Letter: O
Question
O'Brien Company namufactures and sells one product.The following information pertains to each of the company's first three years of operations.
Variable cost per unit:
Manufacturing:
Direct materials $26
Direct labor $17
Variable manufacturing overhead $4
Variable selling & administrative $2
Fixed costs per year:
Fixed manufacturing overhead $540,000
Fixed sellingn & administrative expense $160,000
During its first year of operations, O'Brien produced 96,000 units and sold 78,000 units. During its second year of operations, it produced 82,000 units and sold 95,000 units. In its third year, O'Brien produced 86,000 units and sold 81,000 units. The selling price of the companys products is $77 per unit.
1. Required:
1. Assume the company uses variable costiong and FIFO inventory flow assumption (FIFO means first-in first-out. In other words, if assumes that the oldest units in inverntory are sold first):
a. Compute the unit product cost for Year 1, Year 2 and Year 3
Year 1..............................Unit Product Cost............................
Year 2..............................Unit Product Cost...........................
Year 3..............................Unit Product Cost...........................
b. Prepare a income statement for Year 1, Year 2 and Year 3
O'Brien Company
Variable Costing Income Statement
Year 1 Year 2 Year 3
Variable expenses
Total variable expenses
Fixed expenses:
Total fixed expenses
2. Assume the company uses variable costing and LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):
a. Compute the unit porduct cost for Year 1, Year 2, and Year 3
Year 1..............................Unit Product Cost.......................
Year 2..............................Unit Product Cost.......................
Year 3..............................Unit Product Cost.......................
b. Prepare an income statement for Year 1, Year 2, and Year 3
O'Brien Company
Variable Costing Income Statement
Year 1 Year 2 Year 3
Variable expenses
Total variable expenses
Fixed expenses:
Total fixed expenses
3. Assume the company uses absorption 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, Year 3. (Round your intermediate calculations and final answers to 2 decimal places)
Year 1......................................Unit Product Cost................................
Year 2......................................Unit Product Cost................................
Year 3......................................Unit Product Cost..............................
b. Prepare an income statement for Year 1, Year 2 and Year 3. (Round your intermediate calculations to 2 decimal places.)
O'Brien Company
Absorption Costing Income Statement
Year 1 Year 2 Year 3
4. Assume the company uses absorption costing and a LIFO inventory flow assumptions (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first).
a. Compute the unit product cost for Year 1, Year 2,and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)
Year1....................................Unit Product Cost........................
Year 2..................................Unit Product Cost...........................
Year 3..................................Unit Product Cost..........................
b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermidiate calculations to 2 decimal places.)
O'Brien Company
Absorption Costing Income Statement
Year 1 Year 2 Year 3
Explanation / Answer
O' Brien Unit Product Cost & Sold Year 1 Year 2 Year 3 Beginning Inventory 18000 5000 Production 96000 82000 86000 Sales 78000 95000 81000 Ending Inventory 18000 5000 10000 Year 1 Year 2 Year 3 Direct Material $ 26.00 $ 26.00 $ 26.00 Direct Labor $ 17.00 $ 17.00 $ 17.00 Variable Manufacturing Overhead $ 4.00 $ 4.00 $ 4.00 Unit Product Cost $ 47.00 $ 47.00 $ 47.00 Income Statement under Variable Costing Year 1 Year 2 Year 3 Sales=(78000*$77) in year 1,(95000*$77) in year 2,(81000 *$77) in year 3 $ 6,006,000.00 $ 7,315,000.00 $ 6,237,000.00 Variable Expenses Variable Cost of goods sold(78000*$47) in year 1,(95000*$47) in year 2,(81000*$47) in year 3 $ 3,666,000.00 $ 4,465,000.00 $ 3,807,000.00 Variable Selling & Administerative expenses=($78000*$2) in year 1,(95000*$2) in year 2 and (81000*$2) in year 3 $ 156,000.00 $ 190,000.00 $ 162,000.00 Cotribution Margin $ 2,184,000.00 $ 2,660,000.00 $ 2,268,000.00 Fixed Expenses Fixed Manufacturing Expenses $ 540,000.00 $ 540,000.00 $ 540,000.00 Fixed Selling & Administerative Expenses $ 160,000.00 $ 160,000.00 $ 160,000.00 Net Operating Profit $ 1,484,000.00 $ 1,960,000.00 $ 1,568,000.00 Unit Product Cost under absorption costing Year 1 Year 2 Year 3 Direct Material $ 26.00 $ 26.00 $ 26.00 Direct Labor $ 17.00 $ 17.00 $ 17.00 Variable Manufacturing Overhead $ 4.00 $ 4.00 $ 4.00 Fixed Manufacturing Overhead=($540000/96000 Units) in year 1,($540000/82000) in year 2,($540000/86000) in year 3 $ 5.63 $ 6.59 $ 6.28 Unit Product Cost $ 52.63 $ 53.59 $ 53.28 Income Statement under Absorption costing Year Year 1 Year 2 Year 3 Sales=(78000*$77) in year 1,(95000*$77) in year 2,(81000 *$77) in year 3 $ 6,006,000.00 $ 7,315,000.00 $ 6,237,000.00 Cost of goods sold(78000*52.63) in year 1,(18000*52.63)+(77000*53.59) in year 2,(5000*$53.59) +(76000*$53.28) in year 3 $ 4,104,750.00 $ 5,073,323.17 $ 4,317,136.13 Gross Margin $ 1,901,250.00 $ 2,241,676.83 $ 1,919,863.87 Less: Selling & Administerative Expenses=($2*78000+160000) in year 1, ($2*95000+$160000) in year 2, ($2*81000+$160000) in year 3 $ 316,000.00 $ 350,000.00 $ 322,000.00 Net Operating Income $ 1,585,250.00 $ 1,891,676.83 $ 1,597,863.87 Reconciliation Year Year 1 Year 2 Year 3 Net Income under Variable Costing $ 1,484,000.00 $ 1,960,000.00 $ 1,568,000.00 Add: Fixed Manufacturing Overhead Cost in Inventory of Year 1 = (Stock * Fixed Manufacturing Cost)=18000*5.63 $ 101,250.00 $ (101,250.00) Add: Fixed Manufacturing Overhead Cost in Inventory of Year 2 = (Stock * Fixed Manufacturing Cost)=5000*6.59 $ 32,926.83 $ (32,926.83) Add: Fixed Manufacturing Overhead Cost in Inventory of Year 3 = (Stock * Fixed Manufacturing Cost)=10000*6.28 $ 62,790.70 Net Income underAbsorption Costing $ 1,585,250.00 $ 1,891,676.83 $ 1,597,863.87
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.