Denton Company manufactures and sells a single product. Cost data for the product are given:
Variable costs per unit: |
||||
Direct materials |
$ |
6 |
||
Direct labor |
12 |
|||
Variable manufacturing overhead |
2 |
|||
Variable selling and administrative |
2 |
|||
Total variable cost per unit |
$ |
22 |
||
Fixed costs per month: |
||||
Fixed manufacturing overhead |
$ |
108,000 |
||
Fixed selling and administrative |
169,000 |
|||
Total fixed cost per month |
$ |
277,000 |
||
The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:
Units |
Units |
|
July |
18,000 |
14,000 |
August |
18,000 |
22,000 |
The company’s Accounting Department has prepared the following absorption costing income statements for July and August:
July |
August |
||||
Sales |
$ |
672,000 |
$ |
1,056,000 |
|
Cost of goods sold |
364,000 |
572,000 |
|||
Gross margin |
308,000 |
484,000 |
|||
Selling and administrative expenses |
197,000 |
213,000 |
|||
Net operating income |
$ |
111,000 |
$ |
271,000 |
|
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
Vulcan Company’s contribution format income statement for June is as follows:
Vulcan Company |
||
Sales |
$ |
900,000 |
Variable expenses |
408,000 |
|
Contribution margin |
492,000 |
|
Fixed expenses |
465,000 |
|
Net operating income |
$ |
27,000 |
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
Required:
1-a. Prepare contribution format segmented income statements for the total company broken down between sales territories.
1-b. Prepare contribution format segmented income statements for the Northern Territory broken down by product line.
Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:
Variable costs per unit: |
||
Manufacturing: |
||
Direct materials |
$ |
14 |
Direct labor |
$ |
3 |
Variable manufacturing overhead |
$ |
1 |
Variable selling and administrative |
$ |
1 |
Fixed costs per year: |
||
Fixed manufacturing overhead |
$ |
290,000 |
Fixed selling and administrative |
$ |
200,000 |
During the year, the company produced 29,000 units and sold 22,000 units. The selling price of the company’s product is $42 per unit.
Required:
1. Assume that the company uses absorption costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
2. Assume that the company uses variable costing:
a. Compute the unit product cost.
b. Prepare an income statement for the year.
Requirement 1a. Compute unit product cost under absorption costing as follows
Particulars | Amount |
Direct material | $6.0 |
Direct labor | $12.0 |
Variable manufacturing overhead | $2.0 |
Fixed manufacturing overhead ($108,000 ÷ 18,000) | $6.0 |
Unit Product cost | $26.0 |
Requirement 1b. Compute unit product cost under variable costing as follows
Particulars | Amount |
Direct material | $6.0 |
Direct labor | $12.0 |
Variable manufacturing overhead | $2.0 |
Unit Product cost | $20.0 |
Requirement 2: Prepare variable costing income statements for July and August as follows
Particulars | July | August |
Unit Sales | 14,000 | 22,000 |
Sales Revenue (July: 14,000 × $48; August 22,000 × $48) (a) | $672,000 | $1,056,000 |
Deduct: Variable Expenses: | ||
Cost of goods sold (July: 14,000 × $20; August: 22,000 × $20) | $280,000 | $440,000 |
Selling and admin expenses (July: 14,000 × $2; August: 22,000 × $2) | $28,000 | $44,000 |
Total variable expenses (b) | $308,000 | $484,000 |
(c) Contribution margin (a) − (b) | $364,000 | $572,000 |
Deduct: Fixed Expenses | ||
Manufacturing overhead | $108,000 | $108,000 |
Selling and admin expenses | $169,000 | $169,000 |
Total fixed expenses (d) | $277,000 | $277,000 |
Net operating income (c) − (d) | $87,000 | $295,000 |
Requirement 3: Reconcile the variable costing and absorption as follows
Particulars | July | August |
Operating income under variable costing | $87,000 | $295,000 |
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing | $24,000 | $0 |
Deduct: Fixed manufacturing overhead cost released inventory under absorption costing | $0 | ($24,000) |
Operating income under absorption costing | $111,000 | $271,000 |
Notes: Compute fixed manufacturing overhead deferred or released as follows
Particulars | July | August |
Beginning inventory in units | 0 | 4000 |
Add: Units produced | 18,000 | 18,000 |
Deduct: Units sold | 14,000 | 22,000 |
Ending inventory in units | 4,000 | 0 |
Fixed manufacturing overhead in ending inventory (4,000 × $6) | $24,000 | |
Fixed manufacturing overhead in beginning inventory (4,000 × $6) | ($24,000) | |
Manufacturing overhead in deferred / (released from) inventory | $24,000 | ($24,000) |
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor 10 Variable manufacturing overhead 3 Variable selling and administrative 1 Total variable cost per unit $ 18 Fixed costs per month: Fixed manufacturing overhead $ 96,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 259,000 The product sells for $53 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor 10 Variable manufacturing overhead 3 Variable selling and administrative 2 Total variable cost per unit $ 19 Fixed costs per month: Fixed manufacturing overhead $ 54,000 Fixed selling and administrative 175,000 Total fixed cost per month $ 229,000 The product sells for $54 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 6 Direct labor 10 Variable manufacturing overhead 4 Variable selling and administrative 2 Total variable cost per unit $ 22 Fixed costs per month: Fixed manufacturing overhead $ 105,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 268,000 The product sells for $49 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor 10 Variable manufacturing overhead 4 Variable selling and administrative 2 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 108,000 Fixed selling and administrative 160,000 Total fixed cost per month $ 268,000 The product sells for $50 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 3 Direct labor 10 Variable manufacturing overhead 4 Variable selling and administrative 1 Total variable cost per unit $ 18 Fixed costs per month: Fixed manufacturing overhead $ 81,000 Fixed selling and administrative 175,000 Total fixed cost per month $ 256,000 The product sells for $51 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor 9 Variable manufacturing overhead 2 Variable selling and administrative 2 Total variable cost per unit $ 18 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 166,000 Total fixed cost per month $ 238,000 The product sells for $53 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor 12 Variable manufacturing overhead 4 Variable selling and administrative 2 Total variable cost per unit $ 22 Fixed costs per month: Fixed manufacturing overhead $ 135,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 298,000 The product sells for $53 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor 11 Variable manufacturing overhead 4 Variable selling and administrative 1 Total variable cost per unit $ 21 Fixed costs per month: Fixed manufacturing overhead $ 90,000 Fixed selling and administrative 169,000 Total fixed cost per month $ 259,000 The product sells for $54 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 6 Direct labor 10 Variable manufacturing overhead 2 Variable selling and administrative 2 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 108,000 Fixed selling and administrative 160,000 Total fixed cost per month $ 268,000 The product sells for $50 per unit. Production and sales data for July and August, the first...
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor 11 Variable manufacturing overhead 3 Variable selling and administrative 3 Total variable cost per unit $ 22 Fixed costs per month: Fixed manufacturing overhead $ 105,000 Fixed selling and administrative 160,000 Total fixed cost per month $ 265,000 The product sells for $48 per unit. Production and sales data for July and August, the first...