High Country, Inc., produces and sells many recreational products. The company h

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:

   

  

    Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.

  

  

Prepare an income statement for May.

  

Prepare a contribution format income statement for May.

  Beginning inventory 0      Units produced 44,000      Units sold 39,000      Selling price per unit $85      Selling and administrative expenses:     Variable per unit $4        Fixed per month $ 563,000      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 $ 792,000   

Explanation / Answer

Part 1-a)

The unit product cost under absorption costing is calculated with the use of following table:

_________

Part 1-b)

Absorption costing income statement is provided below:

_________

Part 2-a)

The unit product cost under variable costing is calculated with the use of following table:

_________

Part 2-b)

Contribution format income statement is provided below:

Cost Per Unit Direct Materials Cost Per Unit 15 Direct Labor Cost Per Unit 6 Variable Manufacturing Overhead Cost Per Unit 3 Fixed Manufacturing Overhead Cost Per Unit (792,000/44,000) 18 Unit Product Cost $42

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