High Country, Inc., produces and sells many recreational products. The company h

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                 47,000

Units sold                         42,000

Selling price per unit       $ 84

Selling and administrative expenses:

Variable per unit               $ 3

Fixed (per month) $ 562,000

Manufacturing costs:

Direct materials cost per unit         $ 16

Direct labor cost per unit               $ 9

Variable manufacturing overhead cost per unit $ 1

Fixed manufacturing overhead cost (per month) $ 940,000

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.

Explanation / Answer

1b)

High Country, Inc.

Absorption costing income statement

for the month ended may

2b)

High Country, Inc.

variable costing income statement

for the month ended may

unit cost under absorption costing(1a) Unit cost under variable costing (2a) Direct material 16 16 Direct labor 9 9 variable manufacturing overhead 1 1 Fixed manufacturing overhead 940000/47000=20 unit product cost 46 26

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