Question
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor
Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor 10 Variable manufacturing overhead 3 Variable selling and administrative 3 Total variable cost per unit $ 21 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 235,000 The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced Units Sold July 24,000 20,000 August 24,000 28,000 The company's Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 920,000 $ 1,288,000 Cost of goods sold 420,000 588,000 Gross margin 500,000 700,000 Selling and administrative expenses 223,000 247,000 Net operating income $ 277,000 $ 453,000 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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