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 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

Explanation / Answer

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

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