Question

10.00 points During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1 $ 1,260,000 Year 2 $ 1,890,000 Sales (@ $63 per unit) Cost of goods sold (@ $35 per unit) 700,000 1,050,000 560,000 840,000 Gross margin Selling and administrative expenses 312,000 342,000 Net operating income $ 248,000 $ 498,000 *$3 per unit variable: $252,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($425,000 - 25,000 units) w Absorption costing unit product cost Production and cost data for the two years are given below: Units produced Units sold Year 1 25,000 20,000 Year 2 25,000 30,000

Answer 1

Denton Company Requirement 1 Variable Costing Income Statement For the period ending Year 1 1260000 Year 2 1890000 Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expense Total Variable expenses Contribution Margin 360000 60000 420000 840000 540000 90000 630000 1260000 Fixed Expenses: Fixed Manufactuting Overhead Fixed selling and administrative expense Total Fixed Expenses Net Operating Income 425000 252000 677000 163000 425000 252000 677000 583000 Unit product cost: Direct Materials Direct Labor Variable Manufactuting Overhead Variable costing unit product cost Year 1 Variable cost of goods sold @ 18 per unit 360000 Variable selling and administrative expense @3 per unit 60000 Year 2 540000 90000

Requirement 2 Reconciliation of Variable costing and Absorption Costing Net Operating Income Year 1 163000 Year 2 583000 Variable Costing net operating income Add(deduct) fixed manufacturing overhead deferred in inventory under absorption costing Absorption Costing net operating income 85000 248000 85000 498000 5000 x 17 = 85000; -5000 x 17 =-85000