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: 43,000 38,000 ܘ لما ها ܩ 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) $ 568.002 ܢ ܘ 16 ܩ 9 $ $ 731,000 ܢܙ 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

Requirement 1A Unit Product cost under absorption costing : Direct Material Direct labour Variable manfacturing Overhead Fixed manfacturing Overhead $ $ $ $ 16.00 9.00 1.00 17 Unit Product cost under absorption costing $ 43

Requirement 1B Absorption costing income statement : Sales Less : Cost of goods sold Gross Margin Less: Selling and admin expense Net Operating Income $ $ $ S $ 3,002,000.00 1,634,000.00 1,368,000.00 644,000.00 724,000.00 $ 1,849,000.00 Note : Cost of goods sold : Beginning Inventory Add: cost of goods manfactured 43000*43 Goods available for sale Less : Ending inventory 5000*43 Cost of goods sold $ 1,849,000.00 (215,000) $ 1,634,000

Requirement 2A Unit Product cost under Variable costing : Direct material Direct labour Variable manfacturing Overhead 16.00 $ $ $ 9.00 1.00 26.000

Requirement 2B Contribution method Income Statement $ 3,002,000.00 Sales Less; Variable costs Direct Material Direct Labour Variable overhead costs Variable selling and admin expense $ 608,000.00 $ 342,000.00 $ 38,000.00 $ 76,000.00 $ $ 1,064,000.00 1,938,000.00 Total Variable costs Contribution Margin Less : Fixed expense Fixed selling and admin expense Fixed overhead costs $ 568,000.00 $ 731,000.00 Total Fixed expense Net income /(loss) $ $ 1,299,000.00 639,000.00