Absorption Costing and Variable Costing
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..................................... $6
Direct labor ....................................... $9
Variable manufacturing overhead............... $3
Variable selling and administrative ................. $4
Fixed costs per year:
Fixed manufacturing overhead..................... $300,000
Fixed selling and administrative................... $190,000
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company's product is $50 per unit.
Instructions:
Assume that the company uses the absorption costing method:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
Assume that the company uses the variable costing method:
a. Compute the unit product cost.
b. Prepare an income statement for the year.