Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

      

Variable costs per unit:
Manufacturing:
Direct materials		$ 11
Direct labor		$ 3
Variable manufacturing overhead		$ 1
Variable selling and administrative		$ 1
Fixed costs per year:
Fixed manufacturing overhead	$ 330,000
Fixed selling and administrative	$ 240,000

    

During the year, the company produced 30,000 units and sold 23,000 units. The selling price of the company’s product is $43 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.

               

b.	Prepare an income statement for the year.

            

Answer 1