Exercise 6-12 - Please explain how you arrived at your answers. Thank you!

Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2, LO3]

Fletcher Company manufactures and sells one product. The following information pertains to each of the companys first two years of operations:

Variable costs per unit:
Manufacturing:
Direct materials		$ 30
Direct labor		$ 13
Variable manufacturing overhead		$ 6
Variable selling and administrative		$ 5
Fixed costs per year:
Fixed manufacturing overhead	$	240,000
Fixed selling and administrative expenses	$	70,000

During its first year of operations, Fletcher produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the companys product is $59 per unit.

1.	Assume the company uses variable costing:

a.

Compute the unit product cost for year 1 and year 2.

Year 1 Year 2

Unit Product Cost: _______ __________

b.	Prepare an income statement for year 1 and year 2. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

2.	Assume the company uses absorption costing:

a.	Compute the unit product cost for year 1 and year 2. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Year 1 Year 2

Unit Product Cost: _______ __________

b.

Prepare an income statement for year 1 and year 2. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

3.	Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2. (Input Income and anything that you add as positive numbers. Input losses and anything that you deduct as negative. Omit the "$" sign in your response.)