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 Units produced Units sold Selling price per unit Selling and administrative expenses: Variable 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) 40,000 35, 000 $ 81 $ 3 unit per $563,000 $ $ 17 2 $720,000 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. Req 1B Req 2B Req 1A Req 2A Determine the unit product cost. Assume that the company uses absorption costing Unit product cost

Answer 1

Requirement: 1a High Country Unit Product cost using Absorption Costing Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head (720000/ 40000) Unit Product cost 17.00 9.00 2.000 18.00 46.00 Requirement: 1b High Country Absorption Costing Income Statement Sales (35000 * $81) Cost of Goods Sold Gross Margin Selling and Administrative Overheads Operating Income or loss 2835000 1610000 1225000 668000 557000

Requirement: 2a Unit Product cost using Variable Costing Direct Material Direct Labor Variable Overhead Cost per unit 17.00 9.00 2.00 28.00 Requirement: 2b Variable costing income statement 2835000 980000 105000 Sales (35000* $81 Per unit) Variable Expense Variable cost of goods sold (@28) Variable Selling and Administrative Expense (@3) Total Varible Expenses Contribution Margin Fixed Expenses : Fixed manufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses Net Operating Income 1085000 1750000 720000 563000 1283000 467000