EXERCISE 5-6 Variable and Absorption Costing Unit Product Costs and Income State

Question

EXERCISE 5-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO 5-1, LO 5-2] Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Varlable costs per unit: Manufacturing: %6 %9 Flxed costs per year: $300,000 $190,000 Flxed selling and adminlstratlve. During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit. Required 1. Assume that the company uses absorption costing a. Compute the unit product cost. b. Prepare an income statement for the year 2. Assume that the company uses variable costing a. Compute the unit product cost. b. Prepare an income statement for the year

Explanation / Answer

1a and 2a )

1b)

Lynch company

Absorption costing Income statement

2b)

Lynch company

Variable costing income statement

Absorption costing Variable costing Direct material 6 6 Direct labor 9 9 variable manufacturing overhead 3 3 Fixed manufacturing overhead 300000/25000= $ 12 0 unit cost 30 18

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