Question

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 two months of operations, follow: Units Produced Units Sold July 27,000 23,000 August 27,000 31,000 The company’s Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 1,219,000 $ 1,643,000 Cost of goods sold 575,000 775,000 Gross margin 644,000 868,000 Selling and administrative expenses 209,000 225,000 Net operating income $ 435,000 $ 643,000 Required: 1. Determine the unit product cost under: a. Absorption costing. b. Variable costing. 2. Prepare contribution format variable costing income statements for July and August. 3. Reconcile the variable costing and absorption costing net operating incomes.

Answer 1