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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Units sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

Selling price per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75

Selling and administrative expenses:

Variable per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6

Fixed (per month) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000

Manufacturing costs:

Direct materials cost per unit . . . . . . . . . . . . . . . . . . . . . . $20

Direct labor cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . $8

Variable manufacturing overhead cost per unit . . . . . . . . $2

Fixed manufacturing overhead cost (per month) . . . . . . . $100,000

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.

3. Explain the reason for any difference in the ending inventory balances under the two

costing methods and the impact of this difference on reported net operating income.