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 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $26 $14 $6 $ 3 6-29 Part-1 (Alaol $ 550,000 $ 190,000 During its first year of operations, O'Brien produced 97,000 units and sold 73,000 units. During its second year of operations, it produced 76,000 units and sold 95,000 units. In its third year, O'Brien produced 88,000 units and sold 83,000 units. The selling price of the company's product is $74 per unit.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Help with 4A and 4B please

**O'Brien Company Overview and Cost Analysis**

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: $26
  - Direct labor: $14
  - Variable manufacturing overhead: $6
- Variable selling and administrative: $3

**Fixed Costs per Year:**
- Fixed manufacturing overhead: $550,000
- Fixed selling and administrative expenses: $190,000

**Production and Sales Data:**
- **Year 1:** Produced 97,000 units; Sold 73,000 units
- **Year 2:** Produced 76,000 units; Sold 95,000 units
- **Year 3:** Produced 88,000 units; Sold 83,000 units

The selling price of the company’s product is $74 per unit.

**Case 6-29 Part-1 (Algo)**

**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 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.
Transcribed Image Text:**O'Brien Company Overview and Cost Analysis** 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: $26 - Direct labor: $14 - Variable manufacturing overhead: $6 - Variable selling and administrative: $3 **Fixed Costs per Year:** - Fixed manufacturing overhead: $550,000 - Fixed selling and administrative expenses: $190,000 **Production and Sales Data:** - **Year 1:** Produced 97,000 units; Sold 73,000 units - **Year 2:** Produced 76,000 units; Sold 95,000 units - **Year 3:** Produced 88,000 units; Sold 83,000 units The selling price of the company’s product is $74 per unit. **Case 6-29 Part-1 (Algo)** **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 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.
**Problem 4: Absorption Costing and LIFO Inventory Flow Assumption**

Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in, first-out; in other words, it assumes the newest 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.

**Instructions:**

Complete this question by entering your answers in the tabs below.

**Tabs:**

- Req 4A
- Req 4B

**O’Brien Company**
**Absorption Costing Income Statement**

|                      | Year 1 | Year 2 | Year 3 |
|----------------------|--------|--------|--------|
|                      |        |        |        |
|                      |        |        |        |
|                      |        |        |        |
|                      |        |        |        |
|                      | $0     | $0     | $0     |
|                      | $0     | $0     | $0     |

Note: Round your intermediate calculations to 2 decimal places.
Transcribed Image Text:**Problem 4: Absorption Costing and LIFO Inventory Flow Assumption** Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in, first-out; in other words, it assumes the newest 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. **Instructions:** Complete this question by entering your answers in the tabs below. **Tabs:** - Req 4A - Req 4B **O’Brien Company** **Absorption Costing Income Statement** | | Year 1 | Year 2 | Year 3 | |----------------------|--------|--------|--------| | | | | | | | | | | | | | | | | | | | | | | $0 | $0 | $0 | | | $0 | $0 | $0 | Note: Round your intermediate calculations to 2 decimal places.
Expert Solution
Step 1: Introduction

The gross margin is calculated as the difference between sales and cost of goods sold. The LIFO method implies that newer inventory is sold out and older inventory is left in the stock.

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