Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 5 $ 22 $ 10 $ 4 $ 3
Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 5 $ 22 $ 10 $ 4 $ 3
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two 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
$ 22
$ 10
$ 4
$ 3
$ 400,000
$ 70,000
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it
produced 40,000 units and sold 50,000 units. The selling price of the company's product is $51 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1 and Year 2.
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Step 1: Concept of Absorption costing and Variable costing:
VIEWStep 2: (1-a) Compute the unit product cost for Year 1 and Year 2 Under Variable costing:
VIEWStep 3: (1-b) Prepare an income statement for Year 1 and Year 2:
VIEWStep 4: (2-a) Compute the unit product cost for Year 1 and Year 2 Under Absorption costing:
VIEWStep 5: (2-b) Prepare an income statement for Year 1 and Year 2:
VIEWStep 6: (3) Reconcile the difference between variable costing and absorption costing net operating income:
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