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: Assume that the company uses absorption costing: Compute the unit product cost. Prepare an income statement for the year. Assume that the company uses variable costing: Compute the unit product cost. Prepare an income statement for the year

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Exercise 4-6 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO4-1, LO4-2]

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:
    1. Compute the unit product cost.
    2. Prepare an income statement for the year.
  2. Assume that the company uses variable costing:
    1. Compute the unit product cost.
    2. Prepare an income statement for the year.

 

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