OBrien Company manufactures and sells one product. The following information pertains to each of the companys first three years of operations:

Variable cost per unit:

Manufacturing Direct materials $35

Direct labor $22

Variable manufacturing overhead $6

Fixed costs per year:

Fixed manufacturing overhead $690,000

Fixed selling and administrative expenses $150,000

Note: Direct materials are projected to increase 10% every year while cost of direct labor will increase by 5% each year During its first year of operations, OBrien produced 120,000 units and sold 90,000 units. During its second year of operations, it produced 80,000 units and sold 110,000 units. In its third year, OBrien produced 85,000 units and sold 80,000 units. The selling price of the companys product is $80 per unit.

Required: Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO means last-in firstout. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.