Quantitative accounting: Two pictures for the same problem Exercise 6-6 Variable

Question

Quantitative accounting: Two pictures for the same problem Exercise 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements IL06-1 Lynch company's first year of operations manufactures and sells a single product The following costs were incurred during the Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Variable seling and administrative s 10 5 4 $ 1 S 1 Fixed costs per year Fbed manufacturing overhead Fixed selling and administrative $ 231,000 141,000 During the year, the company produced 21,000 units and sold 17,000 units. The selling price of the company's product is $40 per unit 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

Explanation / Answer

CALCUALTION OF cost of production units by using absorption and variable Costing Particulars Absorption Costing Variable Costing Direct Material Per unit $                                10 $                                10 Direct Labour Per Unit $                                  4 $                                  4 Vairable Manufacturing Overhead $                                  1 $                                  1 Fixed Manufacturing Overhead ($231,000 / 21000 units) $                                11 $                                 -   Cost of Production per unit $                                26 $                                15 ABOSRPTION COSTING INCOME STATEMENTS Absorption Costing Sales (17000 units * $ 40) $                    6,80,000 Cost of Goods Sold Beginning inventory $                                 -   Variable Cost (21000 units * 26) $                    5,46,000 Less: Ending Inventory (4000 Units * 26) $                    1,04,000 Cost of Goods Sold $                    4,42,000 Gross Profit $                    2,38,000 Less : Selling Expenses Fixed Selling Expenses $                    1,41,000 Variable Selling Expenses(17000 units * 1) $                       17,000 Net Income $                       80,000 VARIABLE COSTING INCOME STATEMENTS Variable Costing Sales (17000 units * $ 40) $                    6,80,000 Cost of Goods Sold Beginning inventory $                                 -   Variable Cost (21000 units * 15) $                    3,15,000 Less: Ending Inventory (4000 Units * 15) $                       60,000 Cost of Goods Sold $                    2,55,000 Selling Expenses (17000 Units * $ 1) $                       17,000 Gross Profit $                    4,08,000 Less: Fixed Manufacturing overhead $                    2,31,000 Less : Fixed Selling Expenses $                    1,41,000 Net Income $                       36,000

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