Exercise 7-6 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 company's first year of operations:

Variable costs per unit:Manufacturing:Direct materials$6Direct labor$9Variable manufacturing overhead$3Variable selling and administrative$4Fixed costs per year:Fixed manufacturing overhead$300,000Fixed 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.