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 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 47,000 Units sold 42,000 Selling price per unit $ 81 Selling and administrative expenses: Variable per unit $ 2 Fixed (per month) $ 562,000 Manufacturing costs: Direct materials cost per unit $ 17 Direct labor cost per unit $ 7 Variable manufacturing overhead cost per unit $ 3 Fixed manufacturing overhead cost (per month) $ 940,000

Explanation / Answer

Answer:- 1-)a)-Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$940000/47000 units =$20 per unit

Unit product cost under Absorption costing for one unit:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$17+$7+$3+$20 = $47 per unit

b)-

2)a)-

Unit product cost under variable costing for one unit:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$17+$7+$3 = $27 per unit

b)-

High Country Inc.Income statement (using Absorption costing ) Particulars Amount $ Sales (a) 42000 units*$81 per unit 3402000 Less:- Cost of goods sold (b) Opening inventory NIL Add:-Cost of goods manufatured 47000 units*$47 per unit 2209000 Cost of goods available for sale 2209000 Less:- Closing inventory 5000 units*$47 per unit 235000 1974000 Gross profit C= a-b 1428000 Less:- Opreating Expenses Fixed selling & Administrative expenses 562000 Selling & administrative exp. 42000 units*$2 per unit 84000 Net Opreating Income 782000

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