igh 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 42,000 Units sold 37,000 Selling price per unit $ 76 Selling and administrative expenses: Variable per unit $ 3 Fixed (per month) $ 560,000 Manufacturing costs: Direct materials cost per unit $ 16 Direct labor cost per unit $ 7 Variable manufacturing overhead cost per unit $ 4 Fixed manufacturing overhead cost (per month) $ 672,000 Management is anxious to assess the profitability of the new camp cot during the month of May.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | 42,000 | |
| Units sold | 37,000 | |
| Selling price per unit | $ | 76 |
| Selling and administrative expenses: | ||
| Variable per unit | $ | 3 |
| Fixed (per month) | $ | 560,000 |
| Direct materials cost per unit | $ | 16 |
| Direct labor cost per unit | $ | 7 |
| Variable manufacturing |
$ | 4 |
| Fixed manufacturing overhead cost (per month) | $ | 672,000 |
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:
| Computation of Unit Product Cost - Absorption Costing | |
| Particulars | Per unit |
| Unit Product Cost: | |
| Variable manufacturing cost (16+7+4) | $27.00 |
| Fixed manufacturing overhead (672,000 / 42000) |
$16.00 |
| Unit Product Cost | $43.00 |
1b:
| High Country Inc. | ||
| Full Absorption income statement | ||
| Particulars | Details | Amount |
| Sales | $28,12,000.00 | |
| Cost of Goods Sold: | ||
| Cost of goods produced (42000*$43) | $18,06,000.00 | |
| Add: Opening Inventory | $0.00 | |
| Less: Ending Inventory (5000*$43) | $2,15,000.00 | $15,91,000.00 |
| Gross Profit | $12,21,000.00 | |
| Variable Selling & administrative expenses | $1,11,000.00 | |
| fixed Selling & administrative expenses | $5,60,000.00 | |
| Net Operating Income | $5,50,000.00 | |
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