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 42,000 Units sold 37,000 Selling price per unit $76 Selling and administrative expenses:   Variable per unit $3 Fixed (per month)$557,000 Manufacturing costs:   Direct materials cost per unit $16 Direct labor cost per unit $9 Variable manufacturing overhead cost per unit $1 Fixed manufacturing overhead cost (per month)$672,000   Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May. Required:  1. Assume that the company uses absorption costing.a. Determine the unit product cost.  Unit product cost   b. Prepare an income statement for May.  High Country, Inc.Absorption Costing Income Statement            2. Assume that the company uses variable costing.a. Determine the unit product cost.  Unit product cost   b. Prepare a contribution format income statement for May.  High Country, Inc.Variable Costing Income Statement   Variable expenses:                 Fixed expenses:

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Asked Jul 12, 2019
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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   42,000  
Units sold   37,000  
Selling price per unit   $76  
Selling and administrative expenses:      
Variable per unit   $3  
Fixed (per month) $ 557,000  
Manufacturing costs:      
Direct materials cost per unit   $16  
Direct labor cost per unit   $9  
Variable manufacturing overhead cost per unit   $1  
Fixed manufacturing overhead cost (per month) $ 672,000  
 

 

Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.

 

Required:  

1. Assume that the company uses absorption costing.

a. Determine the unit product cost.

 
 
Unit product cost  

 

 

b. Prepare an income statement for May.

 
 
High Country, Inc.
Absorption Costing Income Statement
   
   
   
   
   

 

 

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

 
 
Unit product cost  

 

 

b. Prepare a contribution format income statement for May.

 
 
High Country, Inc.
Variable Costing Income Statement
     
Variable expenses:    
     
     
     
     
     
Fixed expenses:    
     
     
     
     
     

 

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Expert Answer

Step 1

1 (a) Compute the unit product cost using absorption costing:

 

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Amount(S) Particulars Direct material 16 Direct labor 9 S Variable manufacturing overhead Fixed manufacturing overhead (672,000/42,000) Unit product cost 1 S 16 S 42 Therefore, unit product cost under absorption costing is S42 A

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Step 2

1 (b) Prepare the income statement for the month of May:

 

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High Country, Inc Absorption Costing Income Statement Particulars Amount (S) S 2,812,000 S 1,554,000 S 1,258,000 Sales (37,000 $76) Less: Cost of goods sold (37,000* 42) Gross margin Less: Selling and administrative expenses[(S3* 37,000) +$557,000] S 668,000 Net operating income S 590,000 Therefore, net operating income under absorption costing is $590,000

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Step 3

2 (a) Compute the unit product cost using varia...

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Particulars Amount(S) Direct material S 16 Direct labor 9 Variable manufacturing overhead S 1 Unit product cost S 26 Therefore, unit product cost under Variable costing is S26

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