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 Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: 42,000 37,000 Variable per unit Fixed (per month) 569,000 Manufacturing costs: 18 Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) 672,000 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

Explanation / Answer

1a) Unit product cost under absorption costing Direct materials 18 direct labor 9 variable MOH 2 Fixed MOH (672000/42000) 16 unit product cost 45 answer 1b) Absorption costing income statement sales (37000*77) 2849000 cost of goods sold (37000*45) 1665000 Gross profit 1184000 selling & administrative expense variable selling&adm expense 74000 fixed selling & adm expense 569,000 643000 Net income 541000 2a) unit product cost under variable costing Direct materials 18 direct labor 9 variable MOH 2 unit product cost under variable costing 29 2b) Contribution format Sales 2849000 less variable expense cost of goods sold 1073000 selling and adm expense 74000 1147000 Contribtution margin 1702000 fixed expense fixed MOH 672,000 Fixed selling & adm expense 569000 1,241,000 Net income 461,000

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