Walsh Company manufactures and sells one product. The following information pert

Question

Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: Manufacturing: $ 24 Direct materials Direct labor Variable manufacturing overhead 1 Variable selling and administrative Fixed manufacturing overhead Fixed selling and administrative expenses expenses$320,000 $ 90,000 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 $57 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 stetement 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 below. Req 1A Req 18 Req 2A Req 2B

Explanation / Answer

1 Variable costing Product cost Direct material 24 24 Direct labor 17 17 Variable manufacturing overhead 5 5 Unit product cost 46 46 Units manufactured 50000 40000 Units sold 40,000 50,000 Income statement Sales revenue 2280000 2850000 Less Variable expense Variable cost of goods sold 1840000 2300000 Variable selling and admin expense $4 160000 200000 Total variable expense 2000000 2500000 Contribution margin 280000 350000 Less Fixed cost Fixed manufacturing expense 320000 320000 Fixed Admin expense 90000 90000 Total fixed expenses 410000 410000 Net operating income -130000 -60000 2 Absorption costing 1st year 2nd year Product cost Direct material 24 24 Direct labor 17 17 Variable manufacturing overhead 5 5 Fixed manufacturing (320000/50000) 6.4 8 (320000/40000) Total product cost 52.4 54 Units produced 50000 40000 Units sold 40,000 50,000 units Income statement 1st year 2nd year Sales revenue 2280000 2850000 cost of goods sold Beginning inventory 0 524000 cost of goods manufactured 2620000 2160000 Add Goods available for sale 2620000 2684000 Ending inventory (52.4*10000) 524000 0 Less Cost of goods sold 2096000 2684000 Gross profit 184000 166000 Selling and admin expenses Less Variable selling and admin expense 160000 200000 Fixed Admin expense 90000 90000 Total Selling and admin expenses 250000 290000 Net operating income -66000 -124000 Reconciliation Net operating income variable costing -130000 -60000 Add Ending inventory Fixed manufacturing 64000 -64000 Net operating income absorption costing -66000 -124000

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