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

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Accounting

High Country, Inc., produces and sells many recreationalproducts. The company has just opened a new plant to produce afolding camp cot that will be marketed throughout the UnitedStates. The following cost and revenue data relate to May, thefirst month of the plant’s operation:

Beginning inventory0
Units produced41,000
Units sold36,000
Selling price per unit$77
Selling and administrative expenses:
Variable per unit$3
Fixed (per month)$567,000
Manufacturing costs:
Direct materials cost per unit$15
Direct labor cost per unit$6
Variable manufacturing overhead cost per unit$3
Fixed manufacturing overhead cost (per month)$656,000

Management is anxious to assess the profitability of the newcamp 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 & Explanation Solved by verified expert
4.0 Ratings (705 Votes)

1a
Direct materials cost 15
Direct labor cost 6
Variable manufacturing overhead 3
Fixed manufacturing overhead 16 =656000/41000
Unit product cost 40
1b
Absorption Costing Income Statement
Sales 2772000 =36000*77
Cost of goods sold 1440000 =36000*40
Gross profit 1332000
Selling and administrative expenses 675000 =567000+(36000*3)
Net operating income 657000
2a
Direct materials cost 15
Direct labor cost 6
Variable manufacturing overhead 3
Unit product cost 24
2b
Variable Costing Income Statement
Sales 2772000 =36000*77
Variable expenses:
Variable cost of goods sold 864000 =36000*24
Variable selling and administrative expenses 108000 =36000*3
972000
Contribution margin 1800000
Fixed expenses:
Fixed manufacturing overhead 656000
Fixed selling and administrative expenses 567000
1223000
Net operating income 577000

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