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 (total)………………………………… $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 (total)…. $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 the contribution approach with variable costing.
a.) Determine the unit product cost.
b.) Prepare an income statement for May.
2. Explain the reason for any difference in the ending inventory under the two costing
methods and the impact of this difference on reported net income.