O’Brien Company manufactures and sells one product. Thefollowing information pertains to each of the company’s first threeyears of operations:
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| Variable costs per unit: | |
| Manufacturing: | |
| Direct materials | $29 |
| Direct labor | $15 |
| Variable manufacturingoverhead | $6 |
| Variable selling andadministrative | $1 |
| Fixed costs per year: | |
| Fixed manufacturingoverhead | $580,000 |
| Fixed selling and administrativeexpenses | $120,000 |
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During its first year of operations, O’Brien produced 92,000units and sold 74,000 units. During its second year of operations,it produced 77,000 units and sold 90,000 units. In its third year,O’Brien produced 89,000 units and sold 84,000 units. The sellingprice of the company’s product is $79 per unit.
1. Assume the company uses variable costing and a FIFO inventoryflow assumption (FIFO means first-in first-out. In other words, itassumes that the oldest units in inventory are soldfirst):
a. Compute the unit product cost for Year 1, Year 2, and Year3.
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| | Unit Product Cost | | Year 1 | | | Year 2 | | | Year 3 | |
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b. Prepare an income statement for Year 1, Year 2, and Year3.
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| | O’Brien Company | | Variable Costing Income Statement | | Year 1 | Year 2 | Year 3 | | | | | | Variable expenses: | | | | | | | | | | | | | | | | | | | | | Total variable expenses | 0 | 0 | 0 | | 0 | 0 | 0 | | Fixed expenses: | | | | | | | | | | | | | | | | | | | | | Total fixed expenses | 0 | 0 | 0 | | $0 | $0 | $0 |
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