Lynch Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$ 12
Direct labor	$ 4
Variable manufacturing overhead	$ 2
Variable selling and administrative	$ 2
Fixed costs per year:
Fixed manufacturing overhead	$ 370,000
Fixed selling and administrative	$ 200,000

During the year, the company produced 37,000 units and sold 18,000 units. The selling price of the companys product is $55 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.

Req 1A

Req 1B

Req 2A

Req 2B

Compute the unit product cost. Assume that the company uses absorption costing.

Unit product cost

Prepare an income statement for the year. Assume that the company uses absorption costing.

Lynch Company
Absorption Costing Income Statement

Req 1A

Compute the unit product cost. Assume that the company uses variable costing

Unit product cost

Prepare an income statement for the year. Assume that the company uses variable costing

Lynch Company
Variable Costing Income Statement