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High Country, Inc., produces and sells many recreational products. The company has just opened a new...

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Accounting

High Country, Inc., produces and sells many recreationalproducts. The company has just opened a new plant to produce afolding camp cot that will be marketed throughout the UnitedStates. The following cost and revenue data relate to May, thefirst month of the plant’s operation: Beginning inventory 0 Unitsproduced 44,000 Units sold 39,000 Selling price per unit $ 80Selling and administrative expenses: Variable per unit $ 2 Fixed(per month) $ 566,000 Manufacturing costs: Direct materials costper unit $ 15 Direct labor cost per unit $ 9 Variable manufacturingoverhead cost per unit $ 3 Fixed manufacturing overhead cost (permonth) $ 748,000 Management is anxious to assess the profitabilityof 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 forMay.

2. Assume that the company uses variable costing. a. Determinethe unit product cost. b. Prepare a contribution format incomestatement for May.

Answer & Explanation Solved by verified expert
4.1 Ratings (763 Votes)

1) Unit product cost : Absorption Costing

Direct material 15
Direct labor 9
variable manufacturing overhead 3
Fixed manufacturing overhead (748000/44000) 17
Unit product cost 44

Income statement

Sales (39000*80) 3120000
Cost of goods sold (39000*44) 1716000
Gross profit 1404000
Selling and administrative expense (39000*2+566000) 644000
Operating income 760000

2) Unit product cost : variable Costing

Direct material 15
Direct labor 9
variable manufacturing overhead 3
Unit product cost 27

Income statement

Sales (39000*80) 3120000
Variable Cost of goods sold (39000*27) 1053000
Manufacturing margin 2067000
Variable selling and administrative expense 78000
Contribution margin 1989000
Fixed cost
Fixed manufacturing overhead 748000
Fixed Selling and administrative expense 566000
Total Fixed cost 1314000
Operating income 675000

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