Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements (L.07-1, LO7 2, L07-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses 22 15 6 3400,000 $60,000 During its first year of operations, Walsh 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 company's product is $87 per unit Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1. Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Reg 2A Reg 2B Reg 3 Assume the company uses variable costing. Prepare an income statement for Year 1 and Year 2. Walsh Company Income Statement Year 1 Year 2 $ Sales $ 4,350,000 3,480,000 Variable expenses: Variable cost of goods sold Variable selling and administrative 2,550,000 X 250,000 2,120,000 200,000 X Accounts payable x 2,800,000 680,000 2,320,000 2,030,000 0 0 Net operating income (loss) $ 680,000 $ 2,030,000 Complete this question by entering your answers in the tabs below. Re Req 1A Req 1B Reg 2A Req 2B Reg 3 Assume the company uses absorption costing. Prepare an income statement for Year 1 and Year 2. (Round your intermediate calculations to 2 decimal places.) Walsh Company Income Statement Year 1 Sales Year 2 87 87 Cost of goods sold Gross margin 51 X 53 x 36 34 X Net operating income (loss) 36 $ 34 Complete this question by entering your answers in the tabs below. Reg 1A Req 1B Reg 2A Reg 2B Reg 3 Reconcile the difference between variable costing and absorption costing net operating income in Year 1. (Enter any losses or deductions as a negative value. Round your intermediate calculations to 2 decimal places.) Year 1 Year 2 $ 1,490,000 $ 110.000 80,000 Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income (loss) 100,000 x $ 1,180,000 $ 1,390,000