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High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a foldi

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Answer #1
1.a. Unit product cost   [Refer working note 1] $41
1.b. Absorption costing - Income statement
High Country, Inc.
Absorption Costing Income Statement
Sales                                                  [44,000 units x $79 per unit] $3,476,000
Cost of goods Sold                             [Units sold x Unit product cost = 44,000 units x $41 per unit] $1,804,000
Gross Margin                                    [Sales - Cost of goods sold] $1,672,000
Selling and administrative expenses   [Variable cost + Fixed cost = (44,000 units x $3 per unit) + $565,000] $697,000
Net operating income                        [Gross margin - Selling and administrative expenses] $975,000

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2.a. Unit product cost   [Refer working note 2] $23
2.b. Variable costing - Income statement
High Country, Inc.
Variable Costing Income Statement
Sales                                                  [44,000 units x $79 per unit] $3,476,000
Variable Expenses
   Variable cost of goods sold           [Units sold x Unit product cost = 44,000 units x $23 per unit] $1,012,000
   Variable selling expenses              [44,000 units x $3 per unit] $132,000
$1,144,000
Contribution Margin           [Sales - Variable expenses] $2,332,000
Fixed expenses
   Fixed manufacturing overhead $882,000
   Fixed selling and administrative expenses $565,000
$1,447,000
Net Operating Income [$2,332,000 - $1,447,000] $885,000

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Working note 1 - Computation of unit Product cost as per absorption costing
Direct material cost per unit $15
Direct labor cost per unit $7
Variable manufacturing overhead cost per unit $1
Fixed manufacturing overhead cost per unit

[Fixed manufacturing overhead cost ÷ Number of units produced = $882,000 ÷ 44,000 units]
$18
Unit Product cost $41

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Working note 2 - Computation of unit Product cost as per variable costing
Direct material cost per unit $15
Direct labor cost per unit $7
Variable manufacturing overhead cost per unit $1
Unit Product cost $23
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