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) $562,000

Manufacturing costs:

Direct materials cost per unit $15

Direct labor cost per unit $8

Variable manufacturing overhead cost per unit $3

Fixed manufacturing overhead cost (per month) $816,000

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. Calculate the unit product cost.

b. Prepare income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare contribution format income statement for May.

Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation [LO,6-1, LO6-2, LO6-3]

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:

Year 1 Year 2

Sales (@ $63 per unit) $1,260,000 $1,890,000

Cost of goods sold (@ $36 per unit) 720,000 1,080,000

Gross margin 540,000 810,000

Selling and administrative expenses* 311,000 341,000

Net operating income $229,000 $469,000

* $3 per unit variable; $251,000 fixed each year.

The company's $36 unit product cost is computed as follows:

Direct materials $7

Direct labor 11

Variable manufacturing overhead 4

Fixed manufacturing overhead ($350,000 25,000 units) 14

Absorption costing unit product cost $36

Production and cost data for the first two years of operations are:

Year 1 Year 2

Units produced 25,000 25,000

Units sold 20,000 30,000

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.