Question

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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: 49,000 44,00 83 $ $ $568,000 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) $ $ 18 9 $931,000 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) Unit product cost ; Absorption Costing

Direct material	18
Direct labor	9
Variable manufacturing overhead	2
Fixed manufacturing overhead (931000/49000)	19
Unit product cost	48

1b) Income statement

Sales (44000*83)	3652000
Cost of goods sold	2112000
Gross profit	1540000
Selling and administrative expense (44000*3+568000)	700000
Net income	840000

2a) Unit product cost ; Variable Costing

Direct material	18
Direct labor	9
Variable manufacturing overhead	2
Unit product cost	29

2b) Income statement

Sales (44000*83)		3652000
Variable Cost of goods sold (44000*29)		1276000
Manufacturing margin		2376000
Variable selling and administrative expense		132000
Contribution margin		2244000
Fixed cost
Fixed manufacturing overhead	931000
Fixed selling and administrative	568000
Total Fixed cost		1499000
Net income		745000