Product cost per unit under absorption costing: Under absorption costing, product cost per unit includes direct material, direct labor, and variable overhead . It includes fixed cost which is equally distributed among the quantity produced. To prepare: Income statement for Company A under absorption costing.

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Chapter 21, Problem 26QS

To determine

Concept Introduction:

Product cost per unit under absorption costing:

Under absorption costing, product cost per unit includes direct material, direct labor, and variable overhead. It includes fixed cost which is equally distributed among the quantity produced.

To prepare: Income statement for Company A under absorption costing.

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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: During the year, the company produced 25,000 units and sold 20,000 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.