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		42,000
Units sold		37,000
Selling price per unit	$	83
Selling and administrative expenses:
Variable per unit	$	3
Fixed (per month)	$	567,000
Manufacturing costs:
Direct materials cost per unit	$	18
Direct labor cost per unit	$	10
Variable manufacturing overhead cost per unit	$	2
Fixed manufacturing overhead cost (per month)	$	798,000

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.

Answer 1

Caluclation of Unit Product Cost Direct Materials Direct Lbor Variable Manufacturing overhead Fixed Manufacturing overhead Unit Product Cost Fixed Manufacturing overhead $798,000/42,000 $19 1.a) 18 10 2 19 49 High Country, In. Absorption Costing Income Statement b.) Sales Cost of Goods sold Gross Margin Selling and administrative Expenses Variable selling and administrative Expenses Fixed selling and administrative Expenses Income from Operations $3,071,000 $1,813,000 $1,258,000 $111,000 $678,000 $567,000 S 580,000 Working Notes Sales 37,000 $83 = $3,071,000 Cost of Goods sold 37,000*S49 = $1,813,000 Variable Selling and administrative=37,000*S3 = S111,000

2.a) Caluclation of Unit Product Cost Direct Material Direct Labor Variable Manufacturing overhead 18 $ 10 2 30 High Country, Inc. 2. b) Variable costing Income statement sales $3,071,000 Less: variable Cost of Goods sold Gross Contribution Margin Less: variable seling and administrative cost Contribution Margin Less: fixed Costs Fixed Manufacturing Overhead Fixed selling and administrative costs Total Fixed Cost Income from operations $1,110,000 $1,961,000 S 111,000 $1,850,000 S 798,000 S 567,000 $1,365,000 $ 485,000 Working Notes Sales 37,000*S83 = $3,071,000 Variable Cost of Goods sold 37,000*S30 = $1,110,000 Variable Selling and administrative 37,000 S3 $111,000