Exercise 6-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2]

Lynch Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations:

Variable costs per unit:
Manufacturing:
Direct materials		$ 13
Direct labor		$ 5
Variable manufacturing overhead		$ 1
Variable selling and administrative		$ 1
Fixed costs per year:
Fixed manufacturing overhead	$ 320,000
Fixed selling and administrative	$ 230,000

During the year, the company produced 32,000 units and sold 17,000 units. The selling price of the companys product is $53 per unit.

Required:

1.	Assume that the company uses absorption costing:

a.

Compute the unit product cost.

Unit product cost

b.

Prepare an income statement for the year.

Lynch Company
Absorption Costing Income Statement

2.	Assume that the company uses variable costing:

a.

Compute the unit product cost.

Unit product cost

b.

Prepare an income statement for the year.

Lynch Company
Variable Costing Income Statement
Variable expenses:
Fixed expenses: