OBrien Company manufactures and sells one product. The following information pertains to each of the companys first
Question:
O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:
Variable costs per unit: | ||
Manufacturing: | ||
Direct materials | $ | 28 |
Direct labor | $ | 15 |
Variable manufacturing overhead | $ | 4 |
Variable selling and administrative | $ | 3 |
Fixed costs per year: | ||
Fixed manufacturing overhead | $ | 550,000 |
Fixed selling and administrative expenses | $ | 180,000 |
During its first year of operations, O’Brien produced 94,000 units and sold 71,000 units. During its second year of operations, it produced 85,000 units and sold 103,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $80 per unit.
Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
b. Prepare an income statement for Year 1, Year 2, and Year 3.
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer