Reference no: EM132745681

Question 1 - Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $980. Selected data for the company's operations last year follow:

Units in beginning inventory 0

Units produced 240

Units sold 225

Units in ending inventory 15

Variable costs per unit:

Direct materials $140

Direct labor $360

Variable manufacturing overhead $35

Variable selling and administrative $20

Fixed costs:

Fixed manufacturing overhead $66,000

Fixed selling and administrative $28,000

The absorption costing income statement prepared by the company's accountant for last year appears below:

Sales $220,500

Cost of goods sold 182,250

Gross margin 38,250

Selling and administrative expense 32,500

Net operating income $5,750

Required -

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year?

2. Prepare an income statement for last year using variable costing.

Question 2 - Variable and Absorption Costing Unit Product Costs and Income Statements

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations:

Variable costs per unit:

Manufacturing:

Direct materials $12

Direct labor $6

Variable manufacturing overhead $3

Variable selling and administrative $3

Fixed costs per year:

Fixed manufacturing overhead $276,000

Fixed selling and administrative $186,000

During the year, the company produced 23,000 units and sold 19,000 units. The selling price of the company's product is $50 per unit.

Required -

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.