Required information

Skip to question

[The following information applies to the questions displayed below.]

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	$ 16
Variable manufacturing overhead	$ 3
Variable selling and administrative	$ 3
Fixed costs per year:
Fixed manufacturing overhead	$ 510,000
Fixed selling and administrative expenses	$ 170,000

During its first year of operations, OBrien produced 90,000 units and sold 72,000 units. During its second year of operations, it produced 75,000 units and sold 88,000 units. In its third year, OBrien produced 82,000 units and sold 77,000 units. The selling price of the companys product is $73 per unit.

Required:

1. Assume the company uses variable 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.

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

	Unit Product Cost
Year 1
Year 2
Year 3

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

OBrien Company
Variable Costing Income Statement
	Year 1	Year 2	Year 3
Variable expenses:
Total variable expenses
Fixed expenses:
Total fixed expenses