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		$ 10
Direct labor		$ 4
Variable manufacturing overhead		$ 1
Variable selling and administrative		$ 1
Fixed costs per year:
Fixed manufacturing overhead	$ 231,000
Fixed selling and administrative	$ 141,000

During the year, the company produced 21,000 units and sold 17,000 units. The selling price of the companys product is $40 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

Unit product cost

b. Prepare an income statement for the year.

Lynch Company
Absorption Costing Income Statement

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

Unit product cost

b. Prepare an income statement for the year.

Lynch Company
Variable Costing Income Statement
Variable expenses:
Fixed expenses: