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

$108

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)

$350,000

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:

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