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: 49,000 44,000 85 Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month 2 561,000 17 $ 882,000 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.

Answer 1

ques 1

Ques 1
a.
Direct materials	17
Direct labor	6
Variable manufacturing overhead	3
Fixed manufacturing overhead	18
(882000/49000)
Absorption costing unit product cost	44
b.
Income statement
Sales	3740000
(44000*85)
Cost of goods sold	1936000
(44000*44)
Gross Margin	1804000
Sales and administrative expenses	649000
(44000*2)+561000
Net operating income	1155000

Ques 2

Ques 2
a.
Direct materials	17
Direct labor	6
Variable manufacturing overhead	3
Absorption costing unit product cost	26
Income statement
Sales		3740000
(44000*85)
Variable expenses
Variable cost of goods sold	1144000
(44000*26)
Variable selling expenses	88000
(44000*2)
		1232000
Contribution Margin		2508000
Fixed expenses
Fixed mfr overhead	882000
fixes selling and administrative expenses	561000
		1443000
Net operating income		1065000