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 | 45,000 | |
| Units sold | 40,000 | |
| Selling price per unit | $ | 83 |
| Selling and administrative expenses: | ||
| Variable per unit | $ | 4 |
| Fixed (per month) | $ | 566,000 |
| Manufacturing costs: | ||
| Direct materials cost per unit | $ | 16 |
| Direct labor cost per unit | $ | 8 |
| Variable manufacturing overhead cost per unit | $ | 1 |
| Fixed manufacturing overhead cost (per month) | $ | 675,000 |
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.
a.
The unit product cost under absorption costing is:
| Direct materials | $ | 16 |
| Direct labor | 8 | |
| Variable manufacturing overhead | 1 | |
| Fixed manufacturing overhead ($675,000 ÷ 45,000 units) | 15 | |
| Absorption costing unit product cost | $ | 40 |
b.
Sales (40,000 units × $83 per unit) = $3,320,000
Cost of goods sold (40,000 units × $40 per unit) = $1,600,000
Selling and administrative expenses [$566,000+(40,000 units × $4 per unit)] = $726,000
2.
a.
The unit product cost under variable costing is:
| Direct materials | $ | 16 |
| Direct labor | 8 | |
| Variable manufacturing overhead | 1 | |
| Variable costing unit product cost | $ | 25 |
b.
Sales (40,000 units × $83 per unit) = $3,320,000
Variable cost of goods sold (40,000 units × $25 per unit) = $1,000,000
Variable selling expense (40,000 units × $4 per unit) = $160,000
Here
No comments:
Post a Comment