Question & Answer: O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:…..

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $27 Direct labor $16 Variable manufacturing overhead $5 Variable selling and administrative $4 Fixed costs per year: Fixed manufacturing overhead $560,000 Fixed selling and administrative expenses $180,000 During its first year of operations, O’Brien produced 100,000 units and sold 74,000 units. During its second year of operations, it produced 80,000 units and sold 101,000 units. In its third year, O’Brien produced 86,000 units and sold 81,000 units. The selling price of the company’s product is $78 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):

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

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

2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

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

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

3. Assume the company uses absorption 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. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an absorption costing income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

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