Unit product cost = 16, net income = 1340000 and 564000 for year 1 and 2
Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations: Variable costs per unit: Manufacturing: Direct materials S 29 Direct labor 15 Variable manufacturing overhead $ Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative 6 $320,000 $ 90,000 expenses During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $57 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 2. Assume the company uses absorption costing a. Compute the unit product cost for Year 1 and Year 2 b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1 Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B Req 3 Assume the company uses absorption costing. Prepare an income statement for Year 1 and Year 2. (Round your intermediate calculations to 2 decimal places.) Walsh Company Income Statement Year 2 Year 1 $ 2,280,000 2,256,000 24,000 Sales 2,850,000 2,320,000X Cost of goods sold Gross margin Selling and administrative expenses 200,000X S Net operating income $ (176,000) 0 During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales ( $62 per unit) Cost of goods sold (@ $32 per unit) Gross margin Selling and administrative $1,674,000 $1,054,000 544,000 864,000 510,000 810,000 296,000 326,000 expenses* $\214,000\ $484,000 Net operating income *$3 per unit variable; $245,000 fixed each year. The company's $32 unit product cost is computed as follows: $ 5 Direct materials Direct labor 9 Variable manufacturing overhead Fixed manufacturing overhead ($352,000 22,000 units) 2 16 $32 Absorption costing unit product cost Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 22,000 22,000 Units sold 17,000 27,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 2 Year 1 $ $ Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Less: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income 214,000 484,000 $ 564,000 134,000
