O’Brien Company manufactures and sells one product. The following information pe
ID: 2514653 • 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 97,000 units and sold 70,000 units. During its second year of operations, it produced 80,000 units and sold 102,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $79 per unit.
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, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
Variable costs per unit: Manufacturing: Direct materials $ 30 Direct labor $ 16 Variable manufacturing overhead $ 4 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 550,000 Fixed selling and administrative expenses $ 140,000Explanation / Answer
Solution 3:
Computation of Unit Product Cost - Absorption Costing Particulars Year 1 Year 2 Year 3 Unit Product Cost: Direct material $30.00 $30.00 $30.00 Direct Labor $16.00 $16.00 $16.00 Variable manufacturing overhead $4.00 $4.00 $4.00 Fixed manufacturing overhead(Fixed manufacturing overhead / Nos of unit produced) $5.67 $6.88 $6.40 Unit Product Cost $55.67 $56.88 $56.40
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