Question
OBrien Company manufactures and sells one product. The following information pertains to each of the companys first three years of operations: Variable costs per unit:
OBrien Company manufactures and sells one product. The following information pertains to each of the companys first three years of operations:
Variable costs per unit: | ||
Manufacturing: | ||
Direct materials | $ | 26 |
Direct labor | $ | 18 |
Variable manufacturing overhead | $ | 5 |
Variable selling and administrative | $ | 2 |
Fixed costs per year: | ||
Fixed manufacturing overhead | $ | 530,000 |
Fixed selling and administrative expenses | $ | 120,000 |
During its first year of operations, OBrien produced 91,000 units and sold 74,000 units. During its second year of operations, it produced 80,000 units and sold 92,000 units. In its third year, OBrien produced 87,000 units and sold 82,000 units. The selling price of the companys product is $72 per unit.
Case 6-29 Part-3
3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest 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.
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