Question

ch6 exer 3

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:
Direct materials		$ 25
Direct labor		$ 16
Variable manufacturing overhead		$ 6
Variable selling and administrative		$ 5
Fixed costs per year:
Fixed manufacturing overhead	$	320,000
Fixed selling and administrative expenses	$	60,000

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 $53 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

b.

Prepare an income statement for year 1 and year 2.

Walsh Company
Income Statement
	Year 1	Year 2
Variable expenses
Total variable expenses	0	0
	0	0
Fixed expenses
Total fixed expenses	0	0
Net operating income (loss)	$0	$0

Answer 1

1
	Year 1	Year 2
Direct materials	25	25
Direct labor	16	16
Variable manufacturing overhead	6	6
Unit product cost	47	47
2
	Year 1	Year 2
Sales	2120000	2650000
Variable expenses:
Variable cost of goods sold	1880000	2350000
Variable selling and administrative expense	200000	250000
Total variable expenses	2080000	2600000
Contribution margin	40000	50000
Fixed expenses:
Fixed manufacturing overhead	320000	320000
Fixed selling and administrative expenses	60000	60000
Total fixed expenses	380000	380000
Net operating income (loss)	-340000	-330000