O’Brien Company manufactures and sells one product. Thefollowing information pertains to each of the company’s first threeyears of operations:
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| Variable costs per unit: | |
| Manufacturing: | |
| Direct materials | $29 |
| Direct labor | $15 |
| Variable manufacturing overhead | $4 |
| Variable selling and administrative | $3 |
| Fixed costs per year: | |
| Fixed manufacturing overhead | $520,000 |
| Fixed selling and administrative expenses | $120,000 |
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During its first year of operations, O’Brien produced 100,000units and sold 79,000 units. During its second year of operations,it produced 79,000 units and sold 95,000 units. In its third year,O’Brien produced 83,000 units and sold 78,000 units. The sellingprice of the company’s product is $77 per unit.
Required:
1. Assume the company uses variable costing and a FIFO inventoryflow assumption (FIFO means first-in first-out. In other words, itassumes that the oldest units in inventory are soldfirst):
a. Compute the unit product cost for Year 1, Year 2, and Year3.
| Unit Product Cost |
| Year 1 | ???? |
| Year 2 | ???? |
| Year 3 | ???? |
b. Prepare an income statement for Year 1, Year 2, and Year3.
| O'Brien Company | | |
| Variable Costing Income Statement | | |
| Year 1 | Year 2 | Year 3 |
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| Variable Expense: | | | |
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| Total variable expense: | | | |
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| Fixed expenses: | | | |
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| Total fixed expenses | | | |
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