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: 39,000 34,000 to 79 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) ta ta 3 $ 564,000 17 8 ta ta ta ta 780,000 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

1a
Direct materials cost	17
Direct labor cost	8
Variable manufacturing overhead	2
Fixed manufacturing overhead	20		=780000/39000
Unit product cost	47
1b
Sales	2686000		=34000*79
Cost of goods sold	1598000		=34000*47
Gross profit	1088000
Selling and administrative expenses	666000		=564000+(34000*3)
Net operating income	422000
2a
Direct materials cost	17
Direct labor cost	8
Variable manufacturing overhead	2
Unit product cost	27
2b
Sales		2686000	=34000*79
Variable expenses:
Variable cost of goods sold	918000		=34000*27
Variable selling and administrative expenses	102000		=34000*3
		1020000
Contribution margin		1666000
Fixed expenses:
Fixed manufacturing overhead	780000
Fixed selling and administrative expenses	564000
		1344000
Net operating income		322000