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 37,000 Units sold 32,000 Selling price per unit $ 78 Selling and administrative expenses: Variable per unit $ 3 Fixed (per month) $ 559,000 Manufacturing costs: Direct materials cost per unit $ 16 Direct labor cost per unit $ 7 Variable manufacturing overhead cost per unit $ 1 Fixed manufacturing overhead cost (per month) $ 703,000 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. Calculate the unit product cost. b. Prepare an income statement for May. 2. Assume that the company uses variable costing. a. Calculate the unit product cost. b. Prepare a contribution format income statement for May.

Answer 1

1) a. Unit Product Cost Under Absorption Cost = Direct Material Cost Per Unit + Direct Labor Cost Per Unit + Variable Overhead Per Unit + Fixed Overhead Per Unit

So it is =$ 16+$ 7+$ 1+$3+($559,000/37,000,=$15.1)+($ 703,000/37,000 Units=$19),=$61.1.

Then the Unit Product cost under absorption cost is =$61.1

b. Income Statement

Units produced 37,000 ,Units sold 32,000,  Selling price per unit $ 78

Direct material @$16 x37,000= $592,000

Direct Labour @$7 x37,000 = $259,000

Selling and administrative expenses (Variable) @$3 x 32,000 ,= $96,000

Selling and administrative expenses (Fixed) = $559,000

Manufacturing Overhead @$1 x37,000,= $37,000

Fixed manufacturing overhead = $703,000

Total Cost (Selling and manufacturing)= $2246,000

Unit sold @$78 x 32,000= $2496,000

Income from the trade = $2,50,000

Add Unsold inventory (37,000-32,000,=5,000 units)@$61.1= $305500

Total =$555500