Problem 6-16A Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income

Brock Company produces and sells an industrial product. The company has just opened a new plant to manufacture the product, and the following cost and revenue data have been provided for the first month of the plant's operation:

Beginning Inventory...	0
Units Produced...	40,000
Units Sold...	35,000
Selling Price Per Unit...	$60
Selling and Administrative Expenses:
Variable Per Unit...	$2
Fixed (Total)...	$560,000
Manufacturing Cost:
Direct Materials Cost Per Unit	$15
Direct Labor Cost Per Unit	$7
Variable Manufacturing Overhead Cost Per Unit	$2
Fixed Manufacturing Overhead Cost (Total)	$640,000

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 net operating income