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Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 4 Direct labor

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

Variable costs per unit:
Direct materials $ 4
Direct labor 11
Variable manufacturing overhead 3
Variable selling and administrative 3
Total variable cost per unit $ 21
Fixed costs per month:
Fixed manufacturing overhead $ 84,000
Fixed selling and administrative 175,000
Total fixed cost per month $ 259,000

The product sells for $53 per unit. Production and sales data for July and August, the first two months of operations, follow:

Units Produced Units Sold
July 21,000 17,000
August 21,000 25,000

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

July August
Sales $ 901,000 $ 1,325,000
Cost of goods sold 374,000 550,000
Gross margin 527,000 775,000
Selling and administrative expenses 226,000 250,000
Net operating income $ 301,000 $ 525,000

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.

Requirement 1 Determine the unit product cost under:

Unit Product Cost
a. Absorption costing
b. Variable costing

Prepare contribution format variable costing income statements for July and August.

Denton Company
Variable Costing Income Statement
July August
0 0
0 0
0 0
Net operating income (loss) $0 $0

Reconcile the variable costing and absorption costing net operating incomes. (Enter any losses or deductions as a negative value.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
July August
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing
Absorption costing net operating income (loss)

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