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.

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		46,000
Units sold		41,000
Selling price per unit		$82
Selling and administrative expenses:
Variable per unit		$4
Fixed per month	$	555,000
Manufacturing costs:
Direct materials cost per unit		$17
Direct labor cost per unit		$9
Variable manufacturing overhead cost per unit		$2
Fixed manufacturing overhead cost per month	$	828,000

 

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.

Explanation:

1-a.
The unit product cost under absorption costing is:
  

Direct materials	$	17
Direct labor		9
Variable manufacturing overhead		2
Fixed manufacturing overhead (828,000 ÷ 46,000 units)		18
Absorption costing unit product cost	$	46

 
b.

Sales (41,000 units × $82 per unit) = $3,362,000

Cost of goods sold (41,000 units × $46 per unit) = $1,886,000

Selling and administrative expenses (41,000 units × $4 per unit) + $555,000 = $719,000

 
2-a.
The unit product cost under variable costing is:
  

Direct materials	$	17
Direct labor		9
Variable manufacturing overhead		2
Variable costing unit product cost	$	28

  
b.

Sales (41,000 units × $82 per unit) = $3,362,000

Variable cost of goods sold (41,000 units × $28 per unit) = $1,148,000

Variable selling expense (41,000 units × $4 per unit) = $164,000