Difference in the ending inventory balances

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Reference no: EM1314470

Determining the cost of the product under absorption and variable costing methods.

Variable Costing Problem
Your company has just begun to produce a new product. Revenue and cost data for the first period related to this product are as follows:

Beginning inventory	0
Units produced	40,000
Units sold	35,000
Selling price per unit	$60
Selling and administrative expenses
Variable cost per unit	$2
Total fixed costs	$560,000
Manufacturing costs
Direct materials per unit	$15
Direct labor per unit	$7
Variable mfg OH per unit	$2
Total fixed mfg OH	$640,000

REQUIRED:
1.i) Using absorption costing:
a. Determine the unit product cost
b. Prepare an income statement for the period.
ii) Using variable costing:
a. Determine the unit product cost
b. Prepare an income statement for the period.

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

Reference no: EM1314470

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