In: Accounting
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 $ 84 Selling and administrative expenses: Variable per unit $ 3 Fixed (per month) $ 570,000 Manufacturing costs: Direct materials cost per unit $ 17 Direct labor cost per unit $ 8 Variable manufacturing overhead cost per unit $ 2 Fixed manufacturing overhead cost (per month) $ 880,000 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
1a) | Unit product cost under absorption costing | |||||
Direct materials | 17 | |||||
direct labor | 8 | |||||
variable MOH | 2 | |||||
Fixed MOH | (880,000/44000) | 20 | ||||
unit product cost | 47 | answer | ||||
1b) | Absorption costing income statement | |||||
sales | (39000*84) | 3276000 | ||||
cost of goods sold | (39000*47) | 1833000 | ||||
Gross profit | 1443000 | |||||
selling & administrative expense | ||||||
variable selling&adm expense | 117000 | |||||
fixed selling & adm expense | 570,000 | 687,000 | ||||
Net income | 756,000 | |||||
2a) | unit product cost under variable costing | |||||
Direct materials | 17 | |||||
direct labor | 8 | |||||
variable MOH | 2 | |||||
unit product cost under variable costing | 27 | |||||
2b) | Contribution format | |||||
Sales | 3276000 | |||||
less variable expense | ||||||
cost of goods sold | 1053000 | |||||
selling and adm expense | 117000 | 1170000 | ||||
Contribtution margin | 2106000 | |||||
fixed expense | ||||||
fixed MOH | 880,000 | |||||
Fixed selling & adm expense | 570000 | 1,450,000 | ||||
Net income | 656,000 | |||||