Problem 6-22 Variable Costing Income Statements; Income Reconciliation.

Denton company manufacturea and sells a single product

PROBLEM 6-22 Variable Costing Income Statements; Income Reconciliation LO6-1, L06-2, L06-3 Denton Company manufactures and sells a single product. Cost data for the product are given: $ 7 10 5 3 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead. Fixed selling and administrative. Total fixed cost per month $25 $315,000 245,000 $560,000 The product sells for $60 per unit. Production and sales data for July and August, the first two The company's Accounting Department has prepared the following absorption costing income Chapter 6 months of operations, follow: July August statements for July and August: Units Produced 17,500 17,500 Units Sold 15,000 20,000 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July August $900,000 $1,200,000 600,000 800,000 300,000 400,000 290,000 305,000 $ 10,000 $ 95,000 a. Required: 1. Determine the unit product cost under: 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. 4. The company's Accounting Department has determined the company's break-even point to be 16,000 units per month, computed as follows: Fixed cost per month $560,000 Unit contribution margin $35 per unit = 16,000 units "I'm confused," said the president. "The accounting people say that our break-even point is 16,000 units per month, but we sold only 15,000 units in July, and the income statement they prepared shows a $10,000 profit for that month. Either the income statement is wrong or the break-even point is wrong." Prepare a brief memo for the president, explaining what happened on the July absorption costing income statement