Fletcher Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

Fletcher 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 $ 27
Direct labor $ 16
Variable manufacturing overhead $ 3
Variable selling and administrative $ 2
Fixed costs per year:
Fixed manufacturing overhead $ 320,000
Fixed selling and administrative expenses $ 80,000

During its first year of operations, Fletcher 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.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for year 1 and year 2. (Round your answers to 2 decimal places.)
Year 1: $52.40
Year 2: $54

b. Prepare an income statement for year 1 and year 2.
Year 1, Year 2
Sales…. 2280000, 2850000
COGS…. 2096000, ?
Gross Margin….. 184000, ?
Selling & Admin. expenses….. 160000, 180000
Net operating income…..24,000, ?

As you can see, I can’t find the Cost of Goods Sold for Year 2. I multiplied 54 by 50000 which equal 2700000, but the program says it’s wrong.

3. Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.

Explanation & Answer

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