Question

Problem 6-22 Variable Costing Income Statements; Income Reconciliation (LO6-1, LO6-2, LO6-3] Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit Direct naterials Direct labor 5 11 Variable manufacturing overhead Variable selling and administrative 4 ok $ 21 nt Total variable cost per unit Fixed costs per monthi Fixed manufacturing overhead Fixed selling and adninistrative nces $126,000 166,000 Total fixed cost per month $ 292,000 The product sells for $45 per unit. Production and sales data for July and August, the first two months of operations, follow Units Units Produced Sold July August 21,000 21,000 17,000 25,000

Answer 1

a.	Under Absorption Costing
	Unit product cost:
	Direct Material		$                  5
	Direct Labor		$               11
	Variable Manufacturing overhead		$                  4
	Total Variable Cost		$               20
	Fixed Manufacturing overhead ($126000/21000)		$                  6
	Unit product cost		$               26
b.	Under Variable Costing
	Unit product cost:
	Direct Material		$                  5
	Direct Labor		$               11
	Variable Manufacturing overhead		$                  4
	Unit product cost		$               20
c.	Variable Costing Income Statement
		July	August
	Sales	$   7,65,000	$ 11,25,000
	Variable expenses:
Less:	Variable Cost of goods sold:	$   3,40,000	$   5,00,000
	Variable selling expenses	$       17,000	$       25,000
	Contribution margin	$   4,08,000	$   6,00,000
	Fixed Expenses:
Less:	Fixed Manufacturing overhead	$   1,26,000	$   1,26,000
	Fixed Selling and Administrative expenses	$   1,66,000	$   1,66,000
	Net operating Income	$   1,16,000	$   3,08,000
		July	August
d.	Variable costing net operating income (loss)	$   1,16,000	$   3,08,000
Add / (deduct)	Fixed Manufacturing overhead cost deferred in (released from) inventory under absorption costing [4000 X $6], [-4000 X $6]	24000	$     -24,000
	Absorption costing net operating income (loss)	$   1,40,000	$   2,84,000