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: 46.000 41,000 $85 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 $557,000 $15 $8 $2 $828,000 Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May. Required: 1. Assume that the company uses absorption costing. a. Determine the unit product cost. Unit product cost b. Prepare an income statement for May. High Country, Inc. Absorption Costing Income Statement 2. Assume that the company uses variable costing. a. Determine the unit product cost. Unit product cost b. Prepare a contribution format income statement for May. High Country, Inc. Variable Costing Income Statement Variable expenses: Fixed expenses:

Answer 1

Requirement: 1a High Country Unit Product cost using Absorption Costing Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head (828,000/ 46000) Unit Product cost 15.00 8.00 2.00 18.00 43.00 Requirement: 1b High Country Absorption Costing Income Statement Sales (41000 * $85) Cost of Goods Sold Gross Margin Selling and Administrative Overheads Operating Income or loss 3485000 1763000 1722000 721000 1001000

Requirement: 2a Unit Product cost using Variable Costing Direct Material Direct Labor Variable Overhead Cost per unit 15.00 8.00 2.00 25.00 Requirement: 2b Variable costing income statement 3485000 1025000 164000 Sales (41000 * $84) Variable Expense Variable cost of goods sold (@25) Variable Selling and Administrative Expense (@4) Total Varible Expenses Contribution Margin Fixed Expenses : Fixed manufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses Net Operating Income 1189000 2296000 828000 557000 1385000 911000