Variable costs per unit:
Manufacturing:
Direct materials	$	21
Direct labor	$	13
Variable manufacturing overhead	$	3
Variable selling and administrative	$	2
Fixed costs per year:
Fixed manufacturing overhead	$	400,000
Fixed selling and administrative expenses	$	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 $89 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.

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	$3,560,000	$4,450,000
Variable expenses:
Variable selling and administrative	80,000	100,000
Variable cost of goods sold
Total variable expenses	80,000	100,000
Contribution margin	3,480,000	4,350,000
Fixed expenses:
Fixed manufacturing overhead	400,000	400,000
Fixed selling and administrative expense	60,000	60,000
Total fixed expenses	460,000	460,000
Net operating income (loss)	$3,020,000	$3,890,000

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	Year 2
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income	$0	$0

Answer rating: 100% (QA)

Income Statement for Walsh Company using Variable Costing Year 1 Sales 3560000 Variable Expenses Var... View the full answer