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Question 21: Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials $5

Question 21: Denton Company manufactures and sells a single product. Cost data for the product are given below:

Variable costs per unit:
Direct materials $5
Direct labor 11
Variable manufacturing overhead 3
Variable selling and administrative 2

Total variable costs per unit $21

Fixed costs per month:
Fixed manufacturing overhead $ 45,000
Fixed selling and administrative 163,000

Total fixed cost per month $ 208,000

The product sells for $53 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 $ 583,000 $ 1,007,000
Cost of goods sold 242,000 418,000

Gross margin 341,000 589,000
Selling and administrative expenses 185,000 201,000

Net operating income $ 156,000 $ 388,000

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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