Question

Ch 7 HW Problem 7-20 Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income (L07-1, L07-2, L07-3] 3.75 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: 10,000 Beginning inventory Units produced Unita sold Selling price per unit Selling and administrative expense Variable per unit Fixed (per month) Manufacturing costs Direct materiale cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Tixed manufacturing overhead coat (per month ) 200,000 rences 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 COSL 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 Complete this question by entering your answers in the table below. Reg 1A Reg 10 Reg 2A Reg 20 Determine the unit product cost. Assume that the company uses absorption costing. Un product cost R 10 > < Prev 2 of 4 18 Next >

Answer 1

Answer 1-a.

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead
Unit Product Cost = $20 + $8 + $2 + $100,000/10,000
Unit Product Cost = $40

Answer 1-b.

High Country, Inc. Absorption Costing Income Statement Sales Cost of Goods Sold Gross Profit Selling and Administrative Expenses Net Operating Income 600,000 320,000 280,000 248,000 32,000

Sales = 8,000 * $75
Sales = $600,000

Cost of goods sold = 8,000 * $40
Cost of goods sold = $320,000

Selling and administrative expenses = 8,000 * $6 + $200,000
Selling and administrative expenses = $248,000

Answer 2-a.

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $20 + $8 + $2
Unit Product Cost = $30

Answer 2-b.

$ 600,000 Walsh Company Variable Costing Income Statement Sales Variable Expenses: Variable Cost of Goods Sold $ 240,000 Variable Selling and Administrative Expenses $ 48,000 Total Variable Expenses Contribution Margin Fixed Expenses: Fixed Manufacturing Overhead $ 100,000 Fixed Selling and Administrative Expenses $ 200,000 Total Fixed Expenses Net Operating Income IS 288,000 312,000 $ 300,000 12,000

Sales = 8,000 * $75
Sales = $600,000

Variable cost of goods sold = 8,000 * $30
Variable cost of goods sold = $240,000

Variable selling and administrative expenses = 8,000 * $6
Variable selling and administrative expenses = $48,000