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 48,000
Units sold 43,000
Selling price per unit $81
Selling and administrative expenses:
Variable per unit $3
Fixed per month $565,000
Manufacturing costs:
Direct materials cost per unit $15
Direct labor cost per unit $9
Variable manufacturing overhead cost per unit $2
Fixed manufacturing overhead cost per month $912,000

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.
(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.

1a) Unit product cost :

Direct material                                                         15

Direct labour                                                                   9

Variable manufacturing overhead                           2

Fixed manufacturing overhead (912,000 / 48000)      19

Total unit product cost          =                                      45

1b) Income statement :

Sales (43,000 x 81)                                                        3,483,000

Cost of goods sold (43,000 x 45)                                  -1,935,000

Gross profit                                                                          1,848,000

Selling and administrative expense (42000*3+566000)   -692,000

Net income                              =                                             1,156,000

2a) Unit product cost :

Direct material                                   15

Direct labour                                             8

Variable manufacturing overhead1.00

Total unit product cost      =       24.00

2b) Income statement :

Sales (42000*85)                                               3570000

Variable Cost of goods sold (42000*24)      -1008000

Manufacturing margin                                       2562000

Variable selling and administrative expense-126000

Contribution margin                                        2436000

Fixed cost (799000+566000)                        -1365000

Net income                              =                           1071000

Explanation: