PROBLEM 2 - Mikes Bikes, Incorporated, produces and sells many bicycles. The company has just opened a new plant to produce a new tricycle that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plants operation:

Beginning inventory	0
Units produced	45,000
Units sold	40,000
Selling price per unit	$ 90
Selling and administrative expenses:
Variable per unit	$ 3
Fixed (per month)	$ 600,000
Manufacturing costs:
Direct materials cost per unit	$ 15
Direct labor cost per unit	$ 8
Variable manufacturing overhead cost per unit	$ 3
Fixed manufacturing overhead cost (per month)	$ 900,000

Management is anxious to assess the profitability of the new tricycle 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.

3. Reconcile or explain the reason for any difference in the ending inventory balances under the two costing methods and the impact of this difference on reported income.