Question

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant’s operation:

Beginning inventory		0
Units produced		48,000
Units sold		43,000
Selling price per unit	$	81
Selling and administrative expenses:
Variable per unit	$	4
Fixed (per month)	$	559,000
Manufacturing costs:
Direct materials cost per unit	$	17
Direct labor cost per unit	$	9
Variable manufacturing overhead cost per unit	$	2
Fixed manufacturing overhead cost (per month)	$	768,000

Management is anxious to assess the profitability of the new camp cot during the month of May.

Required:

1. Assume that the company uses absorption costing.

a. Calculate the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare a contribution format income statement for May.

Answer 1

Answer of Part 1-a:

Unit Product Cost = Direct Material per unit + Direct Labor per unit + Variable Manufacturing Overhead cost per unit + Fixed Manufacturing Overhead Cost per unit
Unit Product Cost = $17 + $9 + $2 + ($768,000 /48,000)
Unit Product Cost = $17 + $9 + $2 + $16
Unit Product Cost = $44

Answer of Part 2-a:

Unit Product Cost = Direct Material per unit + Direct Labor per unit + Variable Manufacturing Overhead cost per unit
Unit Product Cost = $17 + $9 + $2
Unit Product Cost = $28