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		$ 10
Direct labor		$ 4
Variable manufacturing overhead		$ 2
Variable selling and administrative		$ 2
Fixed costs per year:
Fixed manufacturing overhead	$ 374,000
Fixed selling and administrative	$ 284,000

During the year, the company produced 34,000 units and sold 26,000 units. The selling price of the companys product is $44 per unit.

Required:

1.	Assume that the company uses absorption costing:

a.

Compute the unit product cost.

Lynch Company
Variable Costing Income Statement
Variable expenses:
		0
		0
Fixed expenses:
		0
		$0

b.

Prepare an income statement for the year.

2.	Assume that the company uses variable costing:

a.	Compute the unit product cost.

Lynch Company
Variable Costing Income Statement
Variable expenses:
		0
		0
Fixed expenses:
		0