Lynch Company manufactures and sells a single product. The following costs were

Question

Lynch Company manufactures and sells a single product. The following costs were incured during the company's first year of operations: Variable costs per unit Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $6 $9 $3 $4 Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative S 300,000 $ 190,000 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 Unit product cost

Explanation / Answer

Variable costing Product cost Direct material 6 Direct labor 9 Variable manufacturing overhead 3 Variable manufacturing cost 18 Units manufactured 25000 Units sold 20,000 Income statement Sales revenue 1000000 Less Variable expense Variable manufacturing cost 360000 Variable marketing and admin expense $4 80000 Total variable expense 440000 Contribution margin 560000 Less Fixed cost Fixed manufacturing expense 300000 Fixed Marketing and Admin expense 190000 Total fixed expenses 490000 Net operating income 70000 Absorption costing Product cost Direct material 6 Direct labor 9 Variable manufacturing overhead 3 Fixed manufacturing (300000/25000) 12 Total product cost 30 Units produced 25000 Units sold 20,000 Income statement Sales revenue 1000000 cost of goods sold Beginning inventory 0 cost of goods manufactured 750000 Add Goods available for sale 750000 Ending inventory 150000 Less Cost of goods sold 600000 Gross profit 400000 Selling and admin expenses Less Variable marketing and admin expense 80000 Fixed marketing and selling expense 190000 Total Selling and admin expenses 270000 Net operating income 130000 3 Reconciliation Net operating income variable costing 70000 Add Ending inventory Fixed manufacturing 60000 (12*5000) Net operating income absorption costing 130000

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