Coverall Inc. produces and sells a unique type of case for a standard size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant’s operation in the form of a worksheet:

Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0

Units produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

Units sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000

Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75

Selling and administrative expenses:

Variable per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8

Fixed (total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $525,000

Manufacturing costs:

Direct materials cost per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18

Direct labour cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8

Variable manufacturing overhead cost per unit . . . . . . . . . . . . . . . . . . . . .. . . . . . $6

Fixed manufacturing overhead cost (total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . $630,000

Since the new case is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

Required:

1. Assume that the company uses absorption costing.

a. Determine the unit product cost.

b . Prepare an income statement for the month.

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

b . Prepare a contribution format income statement for the month.

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