O’Donnell Company manufactures and sells one product. The following information pertains to each…

O’Donnell 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 . . . . . . . . . . . . . . . . . . . . . . . . . . $30

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18

Variable manufacturing overhead . . . . . . . . . . . . $200

Variable selling and administrative . . . . . . . . . . . . . $100

Fixed costs per year:

Fixed manufacturing overhead . . . . . . . . . . . . . . . . $1,080,000

Fixed selling and administrative expenses . . . . . . . $160,000

During its first year of operations, O’Donnell produced 8000 units and sold 6000 units. During its second year of operations, it produced 5,000 units and sold 6,500 units. In its third year, O’Donnell produced 10,000 units and sold 7,500 units. The selling price of the company’s product is $1000 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):

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

b . Prepare an 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 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.

b . Prepare an income statement for year 1, year 2, and year 3.

4. Assume the company uses absorption 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 income statement for year 1, year 2, and year 3.