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 40,000      Units sold 35,000      Selling price per unit $79      Selling and administrative expenses:     Variable per unit $2        Fixed per month $ 559,000      Manufacturing costs:     Direct materials cost per unit $14        Direct labor cost per unit $7        Variable manufacturing overhead cost per unit $1        Fixed manufacturing overhead cost per month $ 800,000   

Explanation / Answer

   Absorption Costing Variable costing Direct materials $14.00 $14.00 Direct labor $7.00 $7.00 Variable manufacturing overhead $1.00 $1.00 Fixed manufacturing overhead 20 0 production cost per unit $42.00 $22.00 TRADITIONAL INCOME STATEMENT Sales 2765000 35000*79 Less COGS 1470000 (40000*42)-(5000*42) Profit 1295000 Less Variable Selling & Admin Exp 70000 35000*2 Less Fixed Selling & Admin Exp 559000 559000 Net Profit 666000 Contribution Format Income Statement Sales 2765000    35000*79 Less Variable COGS 770000 (40000*22)-(5000*22) Gross Contribution 1995000 Less Varible Selling Admin Exp 70000 35000*2 Contribution Margin 1925000 Less Fixed Expenses 1359000 559000+800000 Net Profit 566000

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