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

Question

4 High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that wil be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation: points Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses 46,000 41,000 83 eBook Variable per unit Fixed (per month) 5 561,00e Manufacturing costs: 14 Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) Ask 5 782,000 Print Management is anxious to assess the profitability of the new camp cot during the month of May References 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

Construct The Absorption Costing Unit Product Cost Year 1 Direct Material 14 Direct labour 9 Variable Manufacturing overheads 3 Fixed Manufacturing overheads 17.00 (782000 /46000 units) Absorption costing unit prroduct cost 43.00 Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $3,403,000 Cost of Goods sold 1763000 Gross Margin $1,640,000 Selling and distribution expense 684,000 Net operating income 956,000 Compute the Variable costing Unit Product cost Year 1 Direct Material 14 Direct labour 9 Variable Manufacturing overheads 3 Variable costing unit prroduct cost 26 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 3,403,000 Less: Variable cost    variable cost of goods sold 1,066,000    Variable selling expense 123,000 1,189,000 Contribution margin 2,214,000 Fixed expense:    Fixed Manufacturing overheads 782,000    Fixed selling expense 561,000 Net operating Income 871,000

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