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

ID: 2557005 • Letter: L

Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations Variable costs per unit: Manufacturing: Direct materials $12 Direct labor Variable manufacturing overhead 1 1 Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $308,000 $218,00e During the year, the company produced 28,000 units and sold 15,000 units. The selling price of the company's product is $56 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

Unit Product cost under absorption costing

Unit Product cost under absorption costing

variable cost

12+6+1

19

fixed manufacturing cost per unit

308000/28000

11

cost of goods sold

19+11

30

Income statement using absorption costing

sales

15000*56

840000

less cost of goods sold

15000*30

450000

gross profit

390000

less marketing and adminitrative expenses

variable marketing and administrative expenses

15000*1

15000

fixed selling and administrative expenses

218000

net operating income

157000

Unit Product cost under variable costing

variable cost

12+6+1

19

Income statement using variable costing

sales

15000*56

840000

less variable cost of goods sold

15000*19

285000

gross contribution margin

555000

less variable selling and adminstrative expenses

15000*1

15000

contribution margin

15000*1

540000

Fixed manufacturing expenses

308000

fixed selling and administrative expenses

218000

net operating income

14000

Unit Product cost under absorption costing

Unit Product cost under absorption costing

variable cost

12+6+1

19

fixed manufacturing cost per unit

308000/28000

11

cost of goods sold

19+11

30

Income statement using absorption costing

sales

15000*56

840000

less cost of goods sold

15000*30

450000

gross profit

390000

less marketing and adminitrative expenses

variable marketing and administrative expenses

15000*1

15000

fixed selling and administrative expenses

218000

net operating income

157000

Unit Product cost under variable costing

variable cost

12+6+1

19

Income statement using variable costing

sales

15000*56

840000

less variable cost of goods sold

15000*19

285000

gross contribution margin

555000

less variable selling and adminstrative expenses

15000*1

15000

contribution margin

15000*1

540000

Fixed manufacturing expenses

308000

fixed selling and administrative expenses

218000

net operating income

14000