EXERCISE 5-9 Variable and Absorption Costing Unit Product Costs and Income Statements
[L01, LO2]
Lynch Company manufactures and sells a single product. The following costs were incurred
during the company's first year of operations:
Variable costs per unit:
Manufacturing:
Direct materials
$6
Direct labor
$9
Variable manufacturing overhead
$3
Variable selling and administrative
$4
Fixed costs per year:
Fixed manufacturing overhead
$300,000
Fixed selling and administrative
$190,000
During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the
company's product is $50 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.