High Country, Inc., produces and sells many recreational products. The company h
ID: 2517604 • Letter: 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 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 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.
Beginning inventory 0 Units produced 50,000 Units sold 45,000 Selling price per unit $ 81 Selling and administrative expenses: Variable per unit $ 4 Fixed (per month) $ 562,000 Manufacturing costs: Direct materials cost per unit $ 16 Direct labor cost per unit $ 8 Variable manufacturing overhead cost per unit $ 2 Fixed manufacturing overhead cost (per month) $ 950,000Explanation / Answer
1a) Unit product cost under absorption costing Direct materials 16 direct labor 8 variable MOH 2 Fixed MOH (950,000/50,000) 19 unit product cost 45 answer 1b) Absorption costing income statement sales (45000*81) 3645000 cost of goods sold (45000*45) 2025000 Gross profit 1620000 selling & administrative expense variable selling&adm expense 180000 fixed selling & adm expense 562,000 742,000 Net income 878,000 2a) unit product cost under variable costing Direct materials 16 direct labor 8 variable MOH 2 unit product cost under variable costing 26 2b) Contribution format Sales 3645000 less variable expense cost of goods sold 1170000 selling and adm expense 180000 1350000 Contribtution margin 2295000 fixed expense fixed MOH 950,000 Fixed selling & adm expense 562000 1,512,000 Net income 783,000
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