Walsh Company manufactures and sells one product. The following information pert
ID: 2541673 • Letter: W
Question
Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations Variable costs per unit: Manufacturing: 28 14 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $240,000 70,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $56 per unit. Required 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2 2. Assume the company uses absorption costing a. Compute the unit product cost for Year 1 and Year 2 b. Prepare an income statement for Year 1 and Year 2 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1 Complete this question by entering your answers in the tabs belowExplanation / Answer
1.a.
Product Cost under Variable Costing
Year 1(40,000 units)
Year 2 (50,000 units)
Direct Material
28
28
Direct Labor
14
14
Variable Manufacturing
5
5
Product Cost
$47
$47
b.
Variable Costing Income Statement
Year 1 (40,000 units)
Year 2 (50,000 units)
Sales @ $56 per Unit
$ 2,240,000
$ 2,800,000
Variable Expenses:
Direct Material @ 28 per Unit
$ 1,120,000
$ 1,400,000
Direct Labor @ 14 per unit
$ 560,000
$ 700,000
Variable Manufacturing @5
$ 200,000
$ 250,000
Variable Selling and administrative @4 per Unit
$ 160,000
$ 200,000
Total Variable Expenses
$ 2,040,000
$ 2,550,000
Contribution Margin
$ 200,000
$ 250,000
Fixed Expenses:
Fixed Manufacturing overhead
$ 240,000
$ 240,000
Fixed Selling and administrative Expenses
$ 70,000
$ 70,000
Total Fixed expenses
$ 310,000
$ 310,000
Net Operating Income(loss)
$ (110,000)
$ (60,000)
2.a.
Product Cost under Absorption Costing
Year 1 (40,000 units)
Year 2 (50,000 units)
Direct Material
28
28
Direct Labor
14
14
Variable Manufacturing
5
5
Fixed Manufacturing Cost
6
4.8
Product Cost
$53
$51.8
b.
Absorption Costing Income Statement
year 1
year 2
40,000 units
50,000 units
Sales
$2,240,000
$2,800,000
Cost of Goods Sold:
Opening Stock(A):
424,000
Cost of Goods Manufactured
Direct Material(28*40,000)
1,120,000
1,400,000
Direct Labor(14*40,000)
560,000
700,000
Variable Manufacturing Overhead(5*40,000)
200,000
250,000
Fixed Manufacturing
240,000
240,000
Cost of Goods Manufactured(B)
2,120,000
2,590,000
Total Cost of Goods Available for sale(C=A+B)
2,120,000
3,014,000
Less: Less Closing Stock
2,120,000/50,000 x 40,000
(424,000)
Cost of Goods Sold
(1,696,000)
(3,014,000)
Gross Profit
544,000
(214,000)
Less: Selling and Administrative Cost
Fixed selling and Administrative
(70,000)
(70,000)
Variable Selling and Administrative
(160,000)
(200,000)
Total Selling and Administrative Cost
(230,000)
(270,000)
Operating Income (Loss)
$314,000
$ (484,000)
*********Answered first four sub parts.
Product Cost under Variable Costing
Year 1(40,000 units)
Year 2 (50,000 units)
Direct Material
28
28
Direct Labor
14
14
Variable Manufacturing
5
5
Product Cost
$47
$47
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