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 35,000 Units sold 30,000 Selling price per unit $ 81 Selling and administrative expenses: Variable per unit Fixed (per month) $570,000 Manufacturing costs: Direct materials cost per unit $ 16 Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost 630.000 (per month) 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. Req1A Req 18 Reg 2A Req 2B Determine the unit product cost. Assume that the company uses absorption costing. Unit product Reg 1A Reg 1B >

Answer 1

1-a) Unit product cost under absorption costing

Direct materials cost per unit	$16
Direct labor cost per unit	6
Variable manufacturing overhead cost per unit	4
Fixed manufacturing overhead cost per unit ($630000/35000)	18
Unit product cost	$44

b)

High Country, Inc.,
Absorption Costing Income Statement
Sales (30000*$81)	$2430000
Less: Cost of goods sold (30000*$44)	1320000
Gross profit	1110000
Less: Selling and administrative expenses (30000*$2+$570000)	630000
Net operating income	$480000

2-a) Unit product cost under variable costing

Direct materials cost per unit	$16
Direct labor cost per unit	6
Variable manufacturing overhead cost per unit	4
Unit product cost	$26

b)

High Country, Inc.,
Variable Costing Income Statement
Sales (30000*$81)		$2430000
Less: Variable expenses
Variable cost of goods sold (30000*$26)	780000
Variable selling and administrative expenses (30000*$2)	60000
Total variable expenses		840000
Contribution margin		1590000
Less: Fixed expenses
Fixed manufacturing overhead	630000
Fixed selling and administrative expenses	570000
Total fixed expenses		1200000
Net operating income		$390000