EXERCISE 5A–4 Variable and Absorption Costing Unit Product Costs and Income Statements

[ LO5 , LO6 ]

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 ............................................ $6 Direct labor ................................................... $9 Variable manufacturing overhead ................ $3 Variable selling and administrative ...................... $4 Fixed costs per year:

Fixed manufacturing overhead ........................ $300,000 Fixed selling and administrative ....................... $190,000 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:

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.