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 38,000 Units sold 33,000 Selling price per unit $ 84 Selling and administrative expenses: Variable per unit $ 2 Fixed (per month) $ 556,000 Manufacturing costs: Direct materials cost per unit $ 17 Direct labor cost per unit $ 9 Variable manufacturing overhead cost per unit $ 3 Fixed manufacturing overhead cost (per month) $ 722,000

Explanation / Answer

1a Direct materials 17 Direct labor 9 Variable manufacturing overhead 3 Fixed manufacturing overhead cost 19 =722000/38000 Unit product cost 48 b Sales 2772000 =33000*84 Cost of goods sold 1584000 =33000*48 Gross profit 1188000 Selling and administrative expenses 622000 Net operating income 566000 2a Direct materials 17 Direct labor 9 Variable manufacturing overhead 3 Unit product cost 29 b Sales 2772000 Variable expenses: Variable cost of goods sold 957000 Variable selling and administrative expenses 66000 1023000 Contribution margin 1749000 Fixed expenses: Fixed manufacturing overhead 722000 Fixed selling and administrative expenses 556000 1278000 Net operating income 471000

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