6 value 16.66 points Walsh Company manufactures and sells one product. The follo

Question

6 value 16.66 points Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations Variable costs per unit: Manufacturing: S 25 S 13 S 4 S 3 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses S 240,000 S60,000 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 S53 per unit. Required: 1. Assume the company uses variable costing a. Compute the unit product cost for year 1 and year 2. Year 1 Year 2 Unit product cost S 42 b. Prepare an income statement for year 1 and year 2. Walsh Company Income Statement Year 1 Year 2 Variable expenses Total variable expenses Fixed expenses Total fixed expenses Net operating income (loss)

Explanation / Answer

Solution:(a): Calculation of unit product cost:

Under variable costing, only the variable manufacturing costs are included in product costs.

Note: variable selling and administrative expense are not treated as product costs, that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs.

Solution:(b): Income statement of Walsh Company:

Net operating income(loss)

(c-d)

Particulars year 1 ($) year 2 ($) Direct materials 25 25 Direct labor 13 13 Variable manufacturing overhead 4 4 Variable costing unit product cost $42 $42

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