O’Brien Company manufactures and sells one product. The following information pe
ID: 2567185 • Letter: O
Question
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
During its first year of operations, O’Brien produced 97,000 units and sold 77,000 units. During its second year of operations, it produced 85,000 units and sold 100,000 units. In its third year, O’Brien produced 85,000 units and sold 80,000 units. The selling price of the company’s product is $70 per unit.
1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
2. Assume the company uses variable costing and LIFO inventory flow assumption:
a. compute the unit product cost for year 1, year 2, year 3
b. prepare an income statement for year 1, year 2, and year 3
Variable costs per unit: Manufacturing: Direct materials $29 Direct labor $17 Variable manufacturing overhead $3 Variable selling and administrative $2 Fixed costs per year: Fixed manufacturing overhead $590,000 Fixed selling and administrative expenses $120,000Explanation / Answer
Solution:
1-a) Calculation of the Unit Product Cost for Year 1, Year 2 and Year 3 under FIFO inventory Flow Assumption by using the Varaible Costing:
b) Preparing the Income Statement for Year 1, Year 2 and Year 3:
O’Brien Company
Variable Costing Income Statment
2-a) Calculation of the Unit Product Cost for Year 1, Year 2 and Year 3 under LIFO inventory Flow Assumption by using the Varaible Costing:
b) Preparing the Income Statement for Year 1, Year 2 and Year 3:
O’Brien Company
Variable Costing Income Statment
Year 1 Year 2 Year 3 Direct Materials $29 $29 $29 Direct Labor $17 $17 $17 Variable Manufacturing Overhead $3 $3 $3 Variable Costing Unit Product Cost $49 $49 $49Related Questions
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