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 plants operation: Beginning inventory 0 Units produced 41,000 Units sold 36,000 Selling price per unit $ 76 Selling and administrative expenses: Variable per unit $ 4 Fixed (per month) $ 556,000 Manufacturing costs: Direct materials cost per unit $ 17 Direct labor cost per unit $ 7 Variable manufacturing overhead cost per unit $ 4 Fixed manufacturing overhead cost (per month) $ 820,000 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. Assume that the company uses absorption costing. a. Determine the unit product cost. the unit product cost uses absorption costing Year 1 Units produced Amount per unit ($) 41,000 Direct materials 17 697000 Direct labor 7 287000 Variable manufacturing overhead 4 164000 Fixed manufacturing overhead 820,000 Total manufacturing cost 1968000 Unit product 41,000 Unit product cost 48 Fixed manufacturing overhead per unit b. Prepare the absorption costing income statement for May. absorption costing income statement Year 1 Units sold Sales Cost of goods sold (unit product cost * units sold) Gross margin Selling and administrative expense (fixed + variable) Net operating income (loss) 2. Assume that the company uses variable costing. a. Determine the unit product cost. variable costing Particular Per unit ($) Per unit ($) Direct material Direct labor Variable manufacturing overhead Unit product cost b. Prepare a contribution format income statement for May High country inc Variable costing income statement Per unit / per period Year 1 Units sold Sales Variable expenses Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin (sales VC) Fixed expenses Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss) (Cont FC) Reconcile the difference between variable costing and absorption costing net operating income in Year 1