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 40,000 Units sold 35,000 Selling price per unit $ 83 Selling and administrative expenses: Variable per unit $ 3 Fixed (per month) $ 570,000 Manufacturing costs: Direct materials cost per unit $ 15 Direct labor cost per unit $ 10 Variable manufacturing overhead cost per unit $ 3 Fixed manufacturing overhead cost (per month) $ 720,000 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

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Units produced 40,000 Units sold 35,000

Selling price per unit $ 83

Selling and administrative expenses:

Variable per unit $ 3

Fixed (per month) $ 570,000

Manufacturing costs:

Direct materials cost per unit $ 15

Direct labor cost per unit $ 10

Variable manufacturing overhead cost per unit $ 3

Fixed manufacturing overhead cost (per month) $ 720,000

1) A) Absorption costing= direct material + direct labor + variable overhead + fixed overhead

Absorption costing= 15 + 10 + 3 + (720,000/40,000)= $46

B) Income statement:

Sales= 35,000* 83= 2,905,000

COGS= 46*35,000= (1,610,000)

Gross profit= 1,295,000

Selling and administrative expenses= 3*35,000 + 570,000= (675,000)

Net operating income= 620,000

2) A) variable cost=  direct material + direct labor + variable overhead + variable selling and administrative

unitary variable cost= 15 + 10 + 3 + 3= 31

B) income statement:

Sales= 2,905,000

Variable cost= 31*35,000= (1,085,000)

Contribution margin= 1,820,000

Fixed costs:

Fixed manufacturing overhead cost= (720,000)

Fixed selling and administrative= (570,000)

Net operating income= 530,000