Question

Denton Company manufactures and sells a single product. Cost data for the product are given: $ 4 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 $ 19 $ 120,000 175,000 $ 295,000 The product sells for $49 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced 24,000 24,000 Units Sold 20,000 28,000 July August

Answer 1

. Calculation of Unit cost Under Absorption Costing uly August Direct Material Direct Labour Variable Manufacturing Overhead Fixed Manufacturing Over head 120000/24000 Units Product Cost 22.00 22.00 1. Calculation of Unit cost Under Variable Costing July Direct Material 4.0 Direct Labour Variable Manufacturing Overhead 2.0 Unit Product Cost 17.00 11.01 August 4.0 11.0 2.0 17.00 Answers Unit Product Cost Absorprion Costing Varaible costing 22.00 17.00

August 1372000 Income Statement Under Variable Costing July Sales (@49) 980000 Variable Expense Variable Cost Of Goods Sold (@17) 340000 Variable Selling and Administrative Expense (@2) 40000 Total Varible Expenses 380000 Contribution Magin 600000 Fixed Expenses Fixed mufacturing Overheads 120000 Fixed Sellingand Administrative Expenses 175000 Total fixed Expenses 295000 Net Operating Income(Loss 305000 476000 56000 532000 840000 120000 175000 295000 545000

3. Reconcile the variable costing and absorption costing Net income July August Variable Costing Income(Loss) 305000 545000 Add (Deduct) Fixed Manufacturing Overheads cost Deferred in 20000 -20000 (released From) inventory Absorption Costing Income(loss) 325000 525000 Working Note -1 July Units Produced Units Sold Difference in units =( Produces - Sold) Difference in manufacturing overheads = (Difference in units * fixed manufacturing OH per unit) August 24000 24000 20000 28000 4000 -4000 20,000 -20000