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: 40,000 35,000 80 $ Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) tot 4 565,000 15 A GA GA GA $ 800,000 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. Complete this question by entering your answers in the table below. Reg 1A Req 2A Reg 2B Determine the unit product cost. Assume that the company uses absorption costing. Unit product cost

Answer 1

1a
Direct materials cost	15
Direct labor cost	6
Variable manufacturing overhead	4
Fixed manufacturing overhead	20		=800000/40000
Unit product cost	45
1b
Absorption Costing Income Statement
Sales	2800000		=35000*80
Cost of goods sold	1575000		=35000*45
Gross profit	1225000
Selling and administrative expenses	705000		=565000+(35000*4)
Net operating income	520000
2a
Direct materials cost	15
Direct labor cost	6
Variable manufacturing overhead	4
Unit product cost	25
2b
Variable Costing Income Statement
Sales		2800000	=35000*80
Variable expenses:
Variable cost of goods sold	875000		=35000*25
Variable selling and administrative expenses	140000		=35000*4
		1015000
Contribution margin		1785000
Fixed expenses:
Fixed manufacturing overhead	800000
Fixed selling and administrative expenses	565000
		1365000
Net operating income		420000