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: 43,00 38, eee 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) $ 563,000 15 2 $ 731,eee 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

1.a). Caluclation of Unit Product Cost Direct Materials Direct Lbor Variable Manufacturing overhead Fixed Manufacturing overhead Unit Product Cost Fixed Manufacturing overhead = $731,000/43,000 = $17 $ b.) High Country, Inc., Absorption Costing Income Statement Sales Cost of Goods sold Gross Margin Selling and administrative Expenses Variable selling and administrative Expenses $114,000 Fixed selling and administrative Expenses $563,000 Income from Operations $3,040,000 $1,634,000 $1,406,000 $677,000 729,000 $ Working Notes : Sales = 38,000*$80 = $3,040,000 Cost of Goods Sold = 38,000*$43 = $1,634,000 Variable Selling and administrative = 38,000*$3 = $114,000

2. a). Caluclation of Unit Product Cost Direct Material Direct Labor Variable Manufacturing overhead 26 2. b). High Country. Inc., Variable costing Income statement sales Less: variable Cost of Goods sold Gross Contribution Margin Less: variable selling and administrative cost Contribution Margin Less: fixed Costs Fixed Manufacturing Overhead $ 731,000 Fixed selling and administrative costs $ 563,000 Total Fixed Cost Income from operations $3,040,000 $ 988,000 $2,052,000 $ 114,000 $1,938,000 $1,294,000 $ 644,000 Working Notes : Sales = 38,000*$80 = $3,040,000 Variable Cost of Goods sold = 38,000*$26 = $988,000 Variable Selling and administrative = 38,000*$3 = $114,000