Course Title: Cost Accounting.

Answer all questions.

Question 1

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 39,000

Units sold 34,000

Selling price per unit $80

Selling and administrative expenses:

Variable per unit $3

Fixed (per month) $566,000

Manufacturing costs:

Direct materials cost per unit $16

Direct labor cost per unit $9

Variable manufacturing overhead cost per unit $1

Fixed manufacturing overhead cost (per month) $702,000

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. Determine the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

b. Prepare a contribution format income statement for May.

Questions 2

Tami Tyler opened Tami's Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler's personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Tami's Creations, Inc.

Income Statement

For the Quarter Ended March 31

Sales (28,300 units) $1,132,000

Variable expenses:

Variable cost of goods sold $466,950

Variable selling and administrative 192,440 659,390

Contribution margin 472,610

Fixed expenses:

Fixed manufacturing overhead 250,400

Fixed selling and administrative 234,210 484,610

Net operating loss $( 12,000)

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced 31,300

Units sold 28,300

Variable costs per unit:

Direct materials $7.30

Direct labor $7.60

Variable manufacturing overhead $1.60

Variable selling and administrative $6.80

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

b. What is the company's absorption costing net operating income (loss) for the quarter?

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 31,300 units but sold 34,300 units. (Assume no change in total fixed costs.)

a. What is the company's variable costing net operating income (loss) for the second quarter?

b. What is the company's absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

Question 3

Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:

Direct materials $5

Direct labor 9

Variable manufacturing overhead 3

Variable selling and administrative 2

Total variable cost per unit $19

Fixed costs per month:

Fixed manufacturing overhead $126,000

Fixed selling and administrative $163,000

Total fixed cost per month $289,000

The product sells for $54 per unit. Production and sales data for July and August, the first two months of operations, follow:

Units Units

Produced Sold

July 21,000 17,000

August 21,000 25,000

The company's Accounting Department has prepared the following absorption costing income statements for July and August:

July August

Sales $918,000 $1,350,000

Cost of goods sold 391,000 575,000

Gross margin 527,000 775,000

Selling and administrative expenses 197,000 213,000

Net operating income $330,000 $562,000

Required:

1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

2. Prepare variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating incomes.