1 . Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:

Direct materials $ 3

Direct labor 12

Variable manufacturing overhead 4

Variable selling and administrative 3

Total variable cost per unit $ 22

Fixed costs per month:

Fixed manufacturing overhead $ 135,000

Fixed selling and administrative 160,000

Total fixed cost per month $ 295,000

The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:

UnitsProduced

UnitsSold

July 27,000 23,000

August 27,000 31,000

The companys Accounting Department has prepared the following absorption costing income statements for July and August: July August

Sales $ 1,104,000 $ 1,488,000

Cost of goods sold 552,000 744,000

Gross margin 552,000 744,000

Selling and administrative expenses 229,000 253,000

Net operating income $ 323,000 $ 491,000

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 costing net operating incomes.

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2. Tami Tyler opened Tamis Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tylers personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Tamis Creations, Inc.Income Statement

For the Quarter Ended

March 31

Sales (28,350 units) $ 1,134,000

Variable expenses:

Variable cost of goods sold $ 430,920

Variable selling and administrative 195,615 626,535

Contribution margin 507,465

Fixed expenses:

Fixed manufacturing overhead 266,800

Fixed selling and administrative 260,665 527,465

Net operating loss $ ( 20,000)

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced 33,350

Units sold 28,350

Variable costs per unit:

Direct materials $ 7.20

Direct labor $ 6.00

Variable manufacturing overhead $ 2.00

Variable selling and administrative $ 6.90

Required:

a. Compute the unit product cost under absorption costing.

b. What is the companys absorption costing net operating income (loss) for the quarter?

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 33,350 units but sold 38,350 units. (Assume no change in total fixed costs.

a. What is the companys variable costing net operating income (loss) for the second quarter?

b. What is the companys absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.?