Chapter 6, Problem 6E

EXERCISE 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements L06-1, LO6-2

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				$24
Direct labor				$14
Variable manufacturing overhead			$2
Variable selling and administrative			$4
Fixed costs per year
Fixed manufacturing overhead			$800,00
Fixed selling and administrative expense		$496,000

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.
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.