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: a. compute the unit product cost. b. prepare an income statement for the year. 2. assume that the company uses variable costing: a. compute the unit product cost. b. prepare an income statement for the year.

Instructions are listed below

Explanation:

Giving the following information:

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

1) Absorption costing= direct materials + direct labor + total manufacturing overhead per unit

Absorption costing (per unit)= 11 + 3 + (1 + 330000/30000)= $26

2) Income statement:

Sales= 23000*43= $989000

Cost of goods sold= 23000*26= $598000

Gross income= $391000

Total selling and administrative expense= (1*23000)+240000= 263,000

Net operating income= $128,000

3) Variable costing= direct materials + direct labor + variable manufacturing overhead + variable selling and administrative expense

Variable costing= 11 + 3 + 1 + 1= $16

4) Contribution format income statement:

Sales= 989000

Variable costs= 16*23000= 368,000

Contribution margin= 621,000

Fixed manufacturing overhead= $ 330,000

Fixed selling and administrative= $ 240,000

Total fixed costs= 570,000

Net profit= 51,000

answer; intensive use of a sales force and is relatively costly;