Question 2

Time: 24 minutes

Total: 16 marks

Stark, Inc., produces and sells a unique robot antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:

Selling price

$50

Beginning inventory

0

Units produced

35,000

Units sold

30,000

Selling price per unit

$50

Selling and Admin expenses:

Variable per unit

$2

Fixed (total)

$360,000

Manufacturing costs:

Direct material cost per unit

$9

Direct labour cost per unit

$8

Variable overhead cost per unit

$3

Fixed overhead cost (Total)

$455,000

Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labour is a variable cost.

Submission Instructions:

a.Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement

b.Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.

.Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported operating income.