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		$84
Selling and administrative expenses:
Variable per unit		$2
Fixed per month	$	566,000
Manufacturing costs:
Direct materials cost per unit		$16
Direct labor cost per unit		$10
Variable manufacturing overhead cost per unit		$3
Fixed manufacturing overhead cost per month	$	864,000

  

Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for 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

Answer 1.

Unit Product Cost = Direct Materials Cost per unit + Direct Labor Cost per unit + Variable Manufacturing Overhead Cost per unit + Fixed Manufacturing Overhead Cost per unit
Unit Product Cost = $16 + $10 + $3 + $864,000/48,000
Unit Product Cost = $47.00

Sales = Units Sold * Selling Price per unit
Sales = 43,000 * $84
Sales = $3,612,000

Cost of Goods Sold = Units Sold * Unit Product Cost
Cost of Goods Sold = 43,000 * $47.00
Cost of Goods Sold = $2,021,000

Selling and Administrative Expenses = Units Sold * Variable Selling and Administrative Expenses + Fixed Selling and Administrative Expenses
Selling and Administrative Expenses = 43,000 * $2 + $566,000
Selling and Administrative Expenses = $652,000

Answer 2.

Unit Product Cost = Direct Materials Cost per unit + Direct Labor Cost per unit + Variable Manufacturing Overhead Cost per unit
Unit Product Cost = $16 + $10 + $3
Unit Product Cost = $29.00

Variable Cost of Goods Sold = Units Sold * Unit Product Cost
Variable Cost of Goods Sold = 43,000 * $29.00
Variable Cost of Goods Sold = $1,247,000

Variable Selling and Administrative Expenses = Units Sold * Variable Selling and Administrative Expenses
Variable Selling and Administrative Expenses = 43,000 * $2
Variable Selling and Administrative Expenses = $86,000