Lynch Company manufactures and sells a single product. Thefollowing costs were incurred during the companyâs first year ofoperations:
Variable costs perunit: Manufacturing: Directmaterials $ 13 Direct labor $ 7 Variablemanufacturing overhead $ 1 Variable sellingand administrative $ 1 Fixed costs peryear: Fixedmanufacturing overhead $288,000 Fixedselling and administrative $198,000
During the year, the company produced 24,000 units and sold20,000 units. The selling price of the companyâs product is $48 perunit.
Required:
1. Assume that the company usesabsorption costing:
a. Compute the unit productcost.
b. Prepare an income statement for the year.
2. Assume that the company usesvariable costing:
a. Compute the unit productcost.
b. Prepare an income statement for the year.
Lynch Company manufactures and sells a single product. Thefollowing costs were incurred during the companyâs first year ofoperations: |
| Variable costs perunit: | ||
| Manufacturing: | ||
| Directmaterials | $ 13 | |
| Direct labor | $ 7 | |
| Variablemanufacturing overhead | $ 1 | |
| Variable sellingand administrative | $ 1 | |
| Fixed costs peryear: | ||
| Fixedmanufacturing overhead | $288,000 | |
| Fixedselling and administrative | $198,000 | |
During the year, the company produced 24,000 units and sold20,000 units. The selling price of the companyâs product is $48 perunit. |
| Required: |
| 1. | Assume that the company usesabsorption costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
| 2. | Assume that the company usesvariable costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
Related questions
Exercise 6-6 Variable and Absorption Costing Unit Product Costsand Income Statements [LO6-1, LO6-2]
Lynch Company manufactures and sells a single product. Thefollowing costs were incurred during the companyâs first year ofoperations: |
| Variable costs perunit: | ||
| Manufacturing: | ||
| Directmaterials | $ 10 | |
| Direct labor | $ 4 | |
| Variablemanufacturing overhead | $ 2 | |
| Variable sellingand administrative | $ 2 | |
| Fixed costs peryear: | ||
| Fixedmanufacturing overhead | $374,000 | |
| Fixedselling and administrative | $284,000 | |
During the year, the company produced 34,000 units and sold26,000 units. The selling price of the companyâs product is $44 perunit. |
| Required: |
| 1. | Assume that the company usesabsorption costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
| 2. | Assume that the company usesvariable costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
incurred during the companyâs first year of operations: |
| Variable costs perunit: | ||
| Manufacturing: | ||
| Directmaterials | $ 12 | |
| Direct labor | $ 7 | |
| Variablemanufacturing overhead | $ 2 | |
| Variable sellingand administrative | $ 2 | |
| Fixed costs peryear: | ||
| Fixedmanufacturing overhead | $248,000 | |
| Fixedselling and administrative expenses | $158,000 | |
During the year, the companyproduced 31,000 units and sold 21,000 units. The selling price ofthe companyâs product is $44 per unit. |
| Required: |
| 1. | Assume that the company usesabsorption costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
| 2. | Assume that the company usesvariable costing: |
| a. | Compute the unit productcost. |
| b. | Prepare an income statement for the year. |
| 3. | The companyâs controller believes that the company should haveset last yearâs selling price at $45 instead of $44 per unit. Sheestimates the company could have sold 20,000 units at a price of$45 per unit, thereby increasing the companyâs gross margin by$5,000 and its net operating income by $7,000. |
| a. | Do you think the absorption costing approach is the proper wayto assess the merits of the proposed price increase? | ||||
|
| b. | Do you think the variable costing approach is the proper way toassess the merits of the proposed price increase? | ||||
|
| c. | Using the variable costing approach, by how much will profitsincrease or decrease if the price increase in implemented? |
Lynch Company manufactures and sells a single product. Thefollowing costs were incurred during the companyâs first year ofoperations:
| Variable costs per unit: | ||
| Manufacturing: | ||
| Directmaterials | $ 10 | |
| Direct labor | $ 4 | |
| Variablemanufacturing overhead | $ 1 | |
| Variable sellingand administrative | $ 1 | |
| Fixed costs per year: | ||
| Fixed manufacturing overhead | $231,000 | |
| Fixed selling and administrative | $141,000 | |
During the year, the company produced 21,000 units and sold17,000 units. The selling price of the companyâs product is $40 perunit. |
| 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. |
