Question

Denton Company manufactures and sells a single product. Cost data for the product are given Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 72,000 175,000 $ 247.000 The product sells for $54 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced 18,000 18.000 Units Sold 14,000 22.000 July August The company's Accounting Department has prepared the following absorption costing income statements for July and August: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July $ 756,000 336,000 420,000 217,000 $ 203,000 August $1,188,000 528,000 660,000 2 41,000 $ 419,000 Required: 1. Determine the unit product cost under: a. Absorption costing, b. Variable costing. 2. Prepare variable costing income statements for July and August 3. Reconcile the variable costing and absorption costing net operating incomes. Complete this question by entering your answers in the tabs below. Requirect Required 2 Required 3 Determine the unit product cost under: (a) Absorption costing, (b) Variable costing. Unit Product Cost a. Absorption costing b. Variable costing

Answer 1

a.	Under Absorption Costing
	Unit product cost:
	Direct Material		$                  6
	Direct Labor		$               10
	Variable Manufacturing overhead		$                  4
	Total Variable Cost		$               20
	Fixed Manufacturing overhead ($72000/18000)		$                  4
	Unit product cost		$               24
b.	Under Variable Costing
	Unit product cost:
	Direct Material		$                  6
	Direct Labor		$               10
	Variable Manufacturing overhead		$                  4
	Unit product cost		$               20
c.	Variable Costing Income Statement
		July	August
	Sales	$   7,56,000	$ 11,88,000
	Variable expenses:
Less:	Variable Cost of goods sold:	$   2,80,000	$   4,40,000
	Variable selling expenses	$       42,000	$       66,000
	Contribution margin	$   4,34,000	$   6,82,000
	Fixed Expenses:
Less:	Fixed Manufacturing overhead	$       72,000	$       72,000
	Fixed Selling and Administrative expenses	$   1,75,000	$   1,75,000
	Net operating Income	$   1,87,000	$   4,35,000
		July	August
d.	Variable costing net operating income (loss)	$   1,87,000	$   4,35,000
Add / (deduct)	Fixed Manufacturing overhead cost deferred in (released from) inventory under absorption costing [4000 X $4], [-4000 X $4]	16000	$     -16,000
	Absorption costing net operating income (loss)	$   2,03,000	$   4,19,000

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