Question
Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials $7 Direct labor
Denton Company manufactures and sells a single product. Cost data for the product are given below: |
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Variable costs per unit: |
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Direct materials |
| $7 |
Direct labor |
| 10 |
Variable manufacturing overhead |
| 5 |
Variable selling and administrative |
| 3 |
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Total variable cost per unit |
| $25 |
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Fixed costs per month: |
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Fixed manufacturing overhead | $ | 315,000 |
Fixed selling and administrative |
| 245,000 |
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Total fixed cost per month | $ | 560,000 |
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The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow: |
| Units Produced | Units Sold |
July | 17,500 | 15,000 |
August | 17,500 | 20,000 |
The companys Accounting Department has prepared absorption costing income statements for July and August as presented below: |
| July | August | ||
Sales | $ | 900,000 | $ | 1,200,000 |
Cost of goods sold |
| 600,000 |
| 800,000 |
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Gross margin |
| 300,000 |
| 400,000 |
Selling and administrative expenses |
| 290,000 |
| 305,000 |
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Net operating income | $ | 10,000 | $ | 95,000 |
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Required: |
1. | Determine the unit product cost under absorption costing and variable costing. |
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2. | Prepare contribution format variable costing income statements for July and August. |
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3. | Reconcile the variable costing and absorption costing net operating income figures. |
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