Walsh Company manufactures and sells one product. The followinginformation pertains to each of the company’s first two years ofoperations:
| | |
| Variable costs per unit: | | |
| Manufacturing: | | |
| Direct materials | $ | 29 |
| Direct labor | $ | 10 |
| Variable manufacturing overhead | $ | 3 |
| Variable selling and administrative | $ | 2 |
| Fixed costs per year: | | |
| Fixed manufacturing overhead | $ | 240,000 |
| Fixed selling and administrative expenses | $ | 70,000 |
|
During its first year of operations, Walsh produced 50,000 unitsand sold 40,000 units. During its second year of operations, itproduced 40,000 units and sold 50,000 units. The selling price ofthe company’s product is $60 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 andabsorption costing net operating income in Year 1.
