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		0
Units produced		44,000
Units sold		39,000
Selling price per unit	$	76
Selling and administrative expenses:
Variable per unit	$	3
Fixed (per month)	$	566,000
Manufacturing costs:
Direct materials cost per unit	$	15
Direct labor cost per unit	$	9
Variable manufacturing overhead cost per unit	$	4
Fixed manufacturing overhead cost (per month)	$	748,000

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

Construct The Absorption Costing Unit Product Cost
				Year 1
Direct Material				15
Direct labour				9
Variable Manufacturing overheads				4
Fixed Manufacturing overheads				17.00
Absorption costing unit prroduct cost				45.00
Construct the Absorption Costing Income Statement Under FIFO
				Year 1
Sales				$2,964,000
Cost of Goods sold				1755000
Gross Margin				$1,209,000
Selling and distribution expense				683,000
Net operating income				526,000
Compute the Variable costing Unit Product cost
				Year 1
Direct Material				15
Direct labour				9
Variable Manufacturing overheads				4
Variable costing unit prroduct cost				28
Construct The Variable Costing Income Statement under FIFO
				YEAR 1
Sales					2,964,000
Less: Variable cost
variable cost of goods sold				1,092,000
Variable selling expense				117,000	1,209,000
Contribution margin					1,755,000
Fixed expense:
Fixed Manufacturing overheads					748,000
Fixed selling expense					566,000
Net operating Income					441,000