Problem 7-20 (Algo) Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income [LO7-1, LO7-2, LO7-3]

High Country, Incorporated, 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	40,000
Units sold	35,000
Selling price per unit	$ 78
Selling and administrative expenses:
Variable per unit	$ 3
Fixed (per month)	$ 567,000
Manufacturing costs:
Direct materials cost per unit	$ 18
Direct labor cost per unit	$ 6
Variable manufacturing overhead cost per unit	$ 2
Fixed manufacturing overhead cost (per month)	$ 680,000

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 an income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare a contribution format income statement for May.

1a. Determine the unit product cost. Assume that the company uses absorption costing.

Unit product cost

1b Prepare an income statement for May. Assume that the company uses absorption costing.

High Country, Incorporated
Absorption Costing Income Statement
	0
	$0

2a Determine the unit product cost. Assume that the company uses variable costing.

	Unit product cost

2b Prepare a contribution format income statement for May. Assume that the company uses variable costing.

High Country, Incorporated
Variable Costing Income Statement
		0
		0
		0
		$0