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.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

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

1)

A) Absorption costing captures all product costs (direct labor, direct material, manufacturing overhead) to each unit of a product produced during the period. It includes variable and fixed cost.

Absorption cost= Direct material used + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

B) Income statement:

Revenue/Sales (+)

Cost of Goods Sold (COGS) (-)

=Gross Profit

Marketing, Advertising, and Promotion Expenses (-)

General and Administrative (G&A) Expenses (-)

=EBITDA

Depreciation & Amortization Expense (-)

=Operating Income or EBIT

Interest (-)

Other Expenses (-)

=EBT (Pre-Tax Income)

Income Taxes (-)

=Net Income

2)

A) Variable costing= Direct material used + Direct labor + Variable manufacturing overhead + variable selling and administrative

B) Income statement

Sales

Cost of good sold (-)

Contribution margin

Fixed costs (-)

Depreciation expense (-)

Interest (-)

Net operating profit

Tax (-)

Net profit