Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / A 10% decease in the selling price of a product will have the same impact on net income as a 10% increase in the variable expenses
A 10% decease in the selling price of a product will have the same impact on net income as a 10% increase in the variable expenses. I need help understanding these questions. It's asking if I agree or disagree.
7-5) 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:
Variable costs per unit:
Manufacturing:
Direct materials..............................$6
Direct labor................................. $9
Variable manufacturing overhead......... $3
Variable selling and administrative...................$4
Fixed costs per year:
Fixed manufacturing overhead...............$300,000
Fixed selling and administrative...............$190,000
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 the absorption costing method:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
2. Assume that the company uses the variable costing method:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
A 10% decease in the selling price of a product will have the same impact on net income as a 10%increase in the variable expenses. I need help understanding these questions. It's asking if I agree or disagree.
I disagree because selling price and variable costs can be different and most of the times they are different. This is because variable expenses are the part of the costs which varies according to the number of units sold. The selling price is the money charge from the customer per unit. Thus most of the times they are not same. Hence 10% change in each will be different most of the times.
please see the attached file.
