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

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $940. Selected data for the company’s operations last year follow:

 

Units in beginning inventory		0
Units produced		13,000
Units sold		9,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials		$ 220
Direct labor		$ 500
Variable manufacturing overhead		$ 59
Variable selling and administrative		$ 24
Fixed costs:
Fixed manufacturing overhead		$ 790,000
Fixed selling and administrative		$ 580,000

 

Required:

1.

Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.   Explanation: 1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59     Fixed manufacturing overhead      ($790,000 ÷ 13,000 units)   61       Absorption costing unit product cost $ 840       2. Under variable costing, only the variable manufacturing costs are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59       Variable costing unit product cost $ 779       Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue.