Problem: The following cost and revenue data relate to May, the first month of the plant's operation:
Beginning inventory 0
Units produced 40,000
Units sold 35,000
Selling price per unit $76
Selling and administrative expenses:
Variable per unit $2
Fixed (total) $562,000
Manufacturing costs:
Direct materials cost per unit $15
Direct labor cost per unit $6
Variable manufacturing overhead cost per unit $2
Fixed manufacturing overhead cost (total) $754,000
Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.
Requirement 1:
Assume that the company uses absorption costing.
(a) Determine the unit product cost.
(b) Prepare an income statement for May.
Requirement 2:
Assume that the company uses variable costing.
(a) Determine the unit product cost.
(b) Prepare a contribution format income statement for May.
Requirement 3:
(a) Choose the reason for any difference in the ending inventory balance under the two costing methods.
(b) Choose the impact of the difference in the ending inventory balance and costing methods on reported net operating income.