PROBLEM 6-20 Variable and Absorption Costing Unit Product Costs and Income Statements; Explana-tion of Difference in Net Operating Income LO6-1, LO6-2, LO6-3High Country, Inc., produces and sells many recreational products. The company has just openeda 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:of May.Required:1.Beginning inventoryUnits produced ...Units sold ....Selling price per unit2.Selling and administrative expenses:Variable per unit . . . . .Fixed (per month) ...Manufacturing costs:Direct materials cost per unit ...Direct labor cost per unitVariable manufacturing overhead cost per unitFixed manufacturing overhead cost (per month)010,0008,000$75$6$200,000$20$8$2$100,000Management is anxious to assess the profitability of the new camp cot during the monthAssume that the company uses absorption costing.Calculate the unit product cost.a.b. Prepare an income statement for May.Assume that the company uses variable costing.a.Calculate 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 costingmethods and the impact of this difference on reported net operating income.

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Description: PROBLEM 6-20 Variable and Absorption Costing Unit Product Costs and Income Statements; Explana-tion of Difference in Net Operating Income LO6-1, LO6-2, LO6-3High Country, Inc., produces and sells many recreational products. The company has just open

Whenever a business uses different methods of costing way of income statement then there is a…

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Assume that the company uses absorption costing. Calculate the unit product cost. a. b. Prepare an income statement for May. Assume that the company uses variable costing. Calculate the unit product cost. 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. 1. 2. a. b.

Assume that the company uses absorption costing. Calculate the unit product cost. a. b. Prepare an income statement for May. Assume that the company uses variable costing. Calculate the unit product cost. 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. 1. 2. a. b.

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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PROBLEM 6-20 Variable and Absorption Costing Unit Product Costs and Income Statements; Explana-
tion of Difference in Net Operating Income LO6-1, LO6-2, LO6-3
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:
of May.
Required:
1.
Beginning inventory
Units produced ...
Units sold ....
Selling price per unit
2.
Selling and administrative expenses:
Variable per unit . . . . .
Fixed (per month) ...
Manufacturing costs:
Direct materials cost per unit ...
Direct labor cost per unit
Variable manufacturing overhead cost per unit
Fixed manufacturing overhead cost (per month)
0
10,000
8,000
$75
$6
$200,000
$20
$8
$2
$100,000
Management is anxious to assess the profitability of the new camp cot during the month
Assume that the company uses absorption costing.
Calculate the unit product cost.
a.
b. Prepare an income statement for May.
Assume that the company uses variable costing.
a.
Calculate 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.

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