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 incurred during the company's first year of operations Variable costs per unt Manufacturing S 11 $ 8 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $420,000 $ 330,000 During the year, the company produced 30,000 units and sold 25,000 units. The selling price of the company's product is $54 per unit. Required 1. Assume that the company uses absorption costing a. Compute the unit product cost. Unit product cost b. Prepare an income statement for the year Lynch Company Absorption Costing Income Statement 0 0

Explanation / Answer

1.

a)

b)

2.

a)

Notice that the fixed manufacturing overhead cost has not been included while computing the cost of one unit under variable costing system.

b)

Cost per unit Absorption costing Direct material cost $                                  11 Direct Labour $                                    8 Variable manufacturing overhead $                                    1 Fixed manufacturing overhead ($420,000/30,000) $                                  14 Cost per unit $                                  34

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