Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $980. Selected data for the company's operations last year follow:

Units in beginning inventory 0

Units produced 240

Units sold 225

Units in ending inventory 15

Variable costs per unit:

Direct materials $140

Direct labor $360

Variable manufacturing overhead $35

Variable selling and administrative $20

Fixed costs:

Fixed manufacturing overhead $66,000

Fixed selling and administrative $28,000

The absorption costing income statement prepared by the company's accountant for last year appears below:

Sales $220,500

Cost of goods sold 182,250

Gross margin 38,250

Selling and administrative expense 32,500

Net operating income $5,750

Required:

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

2. Prepare a income statement for last year using variable costing.

Exercise 6-6 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2]

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 $12

Direct labor $6

Variable manufacturing overhead $3

Variable selling and administrative $3

Fixed costs per year:

Fixed manufacturing overhead $276,000

Fixed selling and administrative $186,000

During the year, the company produced 23,000 units and sold 19,000 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 a income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare a income statement for the year.