Question
In: Accounting
Problem 6-20 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference...
Problem 6-20 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income [LO6-1, LO6-2, LO6-3]
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 | 44,000 | |
| Units sold | 39,000 | |
| Selling price per unit | $ | 81 |
| Selling and administrative expenses: | ||
| Variable per unit | $ | 4 |
| Fixed (per month) | $ | 561,000 |
| Manufacturing costs: | ||
| Direct materials cost per unit | $ | 15 |
| Direct labor cost per unit | $ | 9 |
| Variable manufacturing overhead cost per unit | $ | 3 |
| Fixed manufacturing overhead cost (per month) | $ | 748,000 |
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.
Solutions
Expert Solution
| 1a) | Unit product cost under absorption costing | |||||
| Direct materials | 15 | |||||
| direct labor | 9 | |||||
| variable MOH | 3 | |||||
| Fixed MOH | (748000/44,000) | 17 | ||||
| unit product cost | 44 | answer | ||||
| 1b) | Absorption costing income statement | |||||
| sales | (39000*81) | 3159000 | ||||
| cost of goods sold | (39000*44) | 1716000 | ||||
| Gross profit | 1443000 | |||||
| selling & administrative expense | ||||||
| variable selling&adm expense | 156000 | |||||
| fixed selling & adm expense | 561,000 | 717,000 | ||||
| Net income | 726,000 | |||||
| 2a) | unit product cost under variable costing | |||||
| Direct materials | 15 | |||||
| direct labor | 9 | |||||
| variable MOH | 3 | |||||
| unit product cost under variable costing | 27 | |||||
| 2b) | Contribution format | |||||
| Sales | 3159000 | |||||
| less variable expense | ||||||
| cost of goods sold | 1053000 | |||||
| selling and adm expense | 156000 | 1209000 | ||||
| Contribtution margin | 1950000 | |||||
| fixed expense | ||||||
| fixed MOH | 748,000 | |||||
| Fixed selling & adm expense | 561000 | 1,309,000 | ||||
| Net income | 641,000 | |||||
ekkarill92 answered 1 year agoRelated Solutions
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Income [LO6-1, LO6-2, LO6-3] 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
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