Exercise 7-6 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2]

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	$ 11
Direct labor	$ 8
Variable manufacturing overhead	$ 1
Variable selling and administrative	$ 1
Fixed costs per year:
Fixed manufacturing overhead	$ 420,000
Fixed selling and administrative	$ 330,000

During the year, the company produced 30,000 units and sold 25,000 units. The selling price of the companys product is $54 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. NOTE: You will have a BLANK LINE prior to your cost totals on the variable costing income statement to format correctly in the Connect system.