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, Ic., 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 Units produced 10,000 8,000 odr $75 Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) Manufacturing costs: Direct materials cost per unit $6 $200,000 $20 $8 $2 Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) $100,000 Management is anxious to assess the profitability of the new camp cot during the month of May. Required: Assume that the company uses absorption costing. Calculate the unit product cost. b. Prepare an income statement for May. 2. 1. a. Assume that the company uses variable costing. 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. inu a.
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, Ic., 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 Units produced 10,000 8,000 odr $75 Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) Manufacturing costs: Direct materials cost per unit $6 $200,000 $20 $8 $2 Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (per month) $100,000 Management is anxious to assess the profitability of the new camp cot during the month of May. Required: Assume that the company uses absorption costing. Calculate the unit product cost. b. Prepare an income statement for May. 2. 1. a. Assume that the company uses variable costing. 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. inu a.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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 un
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
Units produced
10,000
Units sold
8,000
Selling price per unit
dr $75
Selling and administrative expenses:
Variable per unit
Fixed (per month)
Manufacturing costs:
Direct materials cost per unit
$6
$200,000
$20
Direct labor cost per unit
$8
$2
Variable manufacturing overhead cost per unit
Fixed manufacturing overhead cost (per month)
$100,000
noiteilh
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.
Calculate the unit product cost.
Prepare an income statement for May.
Assume that the company uses variable costing.
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.
а.
b.
2.
a.
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