I posted this question before and the person who answered it answered wrong.....
ID: 2550269 • Letter: I
Question
I posted this question before and the person who answered it answered wrong.........please have someone else try again
The following information applies to the questions displayed below.]
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 94,000 units and sold 76,000 units. During its second year of operations, it produced 80,000 units and sold 93,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $73 per unit.
Assume the company uses absorption 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. (Round your intermediate calculations and final answers to 2 decimal places.)
b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)
4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)
b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)
Variable costs per unit: Manufacturing: Direct materials $28 Direct labor $15 Variable manufacturing overhead $5 Variable selling and administrative $3 Fixed costs per year: Fixed manufacturing overhead $580,000 Fixed selling and administrative expenses $100,000Explanation / Answer
Note1 : For all the parts of the question, it has been assumed that actual production is equal to planned production and hence there is no overabsorption or under absorption of fixed manufacturing overheads.
Note 2 : Cost of goods produced
a) Calculation of unit product cost anf FIFO inventory flow assumption
Note 3 : Closing Stock in $
Since FIFO method is followed, hence the value per unit of closing stock is equal to unit cost of production of current year.
b) Income Statement
4 a) Calculation of unit product cost anf LIFO inventory flow assumption
Note 3 : Closing Stock in $
Since LIFO method is followed, the closing stock is assumed to be left from the previous year(s) and hence the value per unit of closing stock is taken as manufacturing cost of previous year(s).
Since in year 2 all stock manufactured in Year 2 has been sold and hence in Year 3, remaining closing stock of 10,000 belongs to 5,000 of year 1 and 5,000 of year 3
b) Income Statement
Particulars Year 1 Year 2 Year 3 Direct Material 28 28 28 Direct Labour 15 15 15 Variable manufacturing overhead 5 5 5 Fixed manufacturing overhead (A/B) 6.17 7.25 7.07 Cost of goods produced 54.17 55.25 55.07 Total Fixed manufacturing overhead (A) 580,000 580,000 580,000 Units produced (B) 94,000 80,000 82,000