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 38,000 Units sold 33,000 Selling price per unit $ 82 Selling and administrative expenses: Variable per unit $ 3 Fixed (per month) $ 563,000 Manufacturing costs: Direct materials cost per unit $ 17 Direct labor cost per unit $ 8 Variable manufacturing overhead cost per unit $ 4 Fixed manufacturing overhead cost (per month) $ 646,000 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. Determine the unit product cost. b. Prepare an income statement for May. 2. Assume that the company uses variable costing. a. Determine the unit product cost. b. Prepare a contribution format income statement for May.

Answer 1

	Beginning inventory		0
	Units produced		38000 units
	Units sold		33000 units
	Selling price per unit		$82
	Selling and administrative expenses:
	Variable per unit		$3
	Fixed (total)		$563,000
	Manufacturing costs:
	Direct materials cost per unit		$17
	Direct labor cost per unit		$8
	Variable manufacturing overhead cost per unit		$4
	Fixed manufacturing overhead cost (total)		$646,000
	Assume that the company uses absorption costing
	a)Determine the unit product cost
	Direct Material	$                  17.00
	Direct Labour	$                    8.00
	Variable Manufacturing Overhead	$                    4.00
	Fixed Manufacturing Overhead	$                  17.00	($646000/38000 units)
	Absorption Costing Unit Product Cost	$                  46.00
	b)Prepare an income statement for May.
	Sales	$    2,706,000.00	(33000 units*$82)
	Cost of Goods Sold	$ (1,518,000.00)	(33000 units*$46 per unit)
	Gross Margin	$    1,188,000.00
	Selling and administrative Expene
	Variable Selling and administrative Expene	$       (99,000.00)	(33000 units*$3)
	Fixed Selling and administrative Expene	$     (563,000.00)
	Net operating income	$       526,000.00
	Assume that the company uses variable costing
	a)Determine the unit product cost
	Direct Material	$                  17.00
	Direct Labour	$                    8.00
	Variable Manufacturing Overhead	$                    4.00
	Variable Costing Unit Product Cost	$                  29.00	($646000/38000 units)
	b)Prepare an income statement for May.
	Sales	$    2,706,000.00	(33000 units*$82)
	Variable Expense:
	Variable Cost of Goods Sold	$     (957,000.00)	(33000 units*$29 per unit)
	Variable Selling and administrative Expene	$       (99,000.00)	(33000 units*$3)
	Contribution Margin	$    1,650,000.00
	Selling and administrative Expene
	Fixed Expense
	Fixed Manufacturing Overhead	$     (646,000.00)
	Fixed Selling and administrative Expene	$     (563,000.00)
	Net operating income	$       441,000.00