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 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

Answer 1

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