CS_3_WR_PIR: CASE 4-29 Variable and Absorption Costing Unit Product Costs and Income Statements LO4-1, LO4-2O'Brien Company manufactures and sells one product. The following information pertains to eachof the company's first three years of operations:Variable costs per unit:Manufacturing:Direct materials..$32$20$4$3Direct labor ....Variable manufacturing overhead.Variable selling and administrativeFixed costs per year:Fixed manufacturing overhead .Fixed selling and administrative expenses$660,000$120,000During its first year of operations, O'Brien produced 100,000 units and sold 80,000 units.During its second year of operations, it produced 75,000 units and sold 90,000 units. In its thirdyear, O'Brien produced 80,000 units and sold 75,000 units. The selling price of the company'sproduct is $75 per unit.Chapter 4Required:1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO meansfirst-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.b. Prepare an income statement for Year 1, Year 2, and Year 3.2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO meanslast-in first-out. In other words, it assumes that the newest units in inventory are sold first):Compute the unit product cost for Year 1, Year 2, and Year 3.b. Prepare an income statement for Year 1, Year 2, and Year 3.3. 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 areа.sold first):a. Compute the unit product cost for Year 1, Year 2, and Year 3.b. Prepare an income statement for Year 1, Year 2, and Year 3.4. 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 aresold first):Compute the unit product cost for Year 1, Year 2, and Year 3.b. Prepare an income statement for Year 1, Year 2, and Year 3.а.

Answered: 1. Assume the company uses variable…

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CS_3_WR_PIR:

CASE 4-29 Variable and Absorption Costing Unit Product Costs and Income Statements LO4-1, LO4-2
O'Brien Company manufactures and sells one product. The following information pertains to each
of the company's first three years of operations:
Variable costs per unit:
Manufacturing:
Direct materials..
$32
$20
$4
$3
Direct labor ....
Variable manufacturing overhead.
Variable selling and administrative
Fixed costs per year:
Fixed manufacturing overhead .
Fixed selling and administrative expenses
$660,000
$120,000
During its first year of operations, O'Brien produced 100,000 units and sold 80,000 units.
During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third
year, O'Brien produced 80,000 units and sold 75,000 units. The selling price of the company's
product is $75 per unit.
Chapter 4
Required:
1. Assume the company uses variable 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.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
2. Assume the company uses variable 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):
Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
3. 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
а.
sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
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):
Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
а.

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Variable costing is the costing method of valuing the product cost of the units produced during the year on which only the variable direct costs are taken into consideration in order to compute the product cost per unit.

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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 100,000 units and sold 80,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, O’Brien produced 80,000 units and sold 75,000 units. The selling price of the company’s product is $75 per unit.

Required:

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):
1. Compute the unit product cost for Year 1, Year 2, and Year 3.
2. Prepare an income statement for Year 1, Year 2, and Year 3.
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):
1. Compute the unit product cost for Year 1, Year 2, and Year 3.
2. Prepare an income statement for Year 1, Year 2, and Year 3.

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