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Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials $6 Direct labor
Denton Company manufactures and sells a single product. Cost data for the product are given below: |
Variable costs per unit: | ||
Direct materials | $6 | |
Direct labor | 11 | |
Variable manufacturing overhead | 4 | |
Variable selling and administrative | 2 | |
Total variable costs per unit | $23 | |
Fixed costs per month: | ||
Fixed manufacturing overhead | $ | 75,000 |
Fixed selling and administrative | 163,000 | |
Total fixed cost per month | $ | 238,000 |
The product sells for $51 per unit. Production and sales data for July and August, the first two months of operations, are as follows: |
Units Produced | Units Sold | |
July | 15,000 | 11,000 |
August | 15,000 | 19,000 |
The companys Accounting Department has prepared absorption costing income statements for July and August as presented below: |
July | August | |||
Sales | $ | 561,000 | $ | 969,000 |
Cost of goods sold | 286,000 | 494,000 | ||
Gross margin | 275,000 | 475,000 | ||
Selling and administrative expenses | 185,000 | 201,000 | ||
Net operating income | $ | 90,000 | $ | 274,000 |
Required: |
1. | Determine the unit product cost under absorption costing and variable costing. |
2. | Prepare contribution format variable costing income statements for July and August. |
3. | Reconcile the variable costing and absorption costing net operating income. |
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