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 42,000 Units sold 37,000 Selling price per unit $ 82 Selling and administrative expenses: Variable per unit $ 2 Fixed (per month) $ 555,000 Manufacturing costs: Direct materials cost per unit $ 16 Direct labor cost per unit $ 9 Variable manufacturing overhead cost per unit $ 3 Fixed manufacturing overhead cost (per month) $ 714,000

Explanation / Answer

1 under Absorbption costing Unit production cost and income Statement Unit production Cost Amount in $ Direct material Cost 16 Direct labour Cost 9 variable manufacturing over head 3 Fixed manufacturing over head 17 Production cost per unit 45 Fixed manufacturing over head cost per unit = Fixed manufacturing Cost / Units produced =$714000/42000 =$17 income Statement under Absorption Method for may Amount in $ Sales Revenue 37000*$82 3034000 less: Cost of Goods sold   (37000*45) 1665000 Gross profit 1369000 less : Selling & Admin Expenses       variable selling Expenses (37000*2) 74000        Fixed Selling Epenses 555000 Operating profit 740000 2 under variable costing Unit production cost and income Statement Unit production Cost Amount in $ Direct material Cost 16 Direct labour Cost 9 variable manufacturing over head 3 variable selling & Admin 2 Production cost per unit 30 income Statement under variable costing Method for may Amount in $ Sales Revenue 37000*$82 3034000 less: variable Cost of Goods sold   (37000*30) 1110000 Contribution margin 1924000 Less: Period Expenses Fixed Selling & Admin Expenses 555000 Fixed manufacturing Over head 714000 Operating profit 655000

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