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				10
Variable manufacturing overhead				3
Variable selling and administrative				3
Total variable cost per unit			$	21
Fixed costs per month:
Fixed manufacturing overhead	$	120,000
Fixed selling and administrative		166,000
Total fixed cost per month	$	286,000

The product sells for $50 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	$	1,000,000		$	1,400,000
Cost of goods sold		460,000			644,000
Gross margin		540,000			756,000
Selling and administrative expenses		226,000			250,000
Net operating income	$	314,000		$	506,000

Required:

1. Determine the unit product cost under: (a) Absorption costing, (b) Variable costing. Need help for absorption

	Unit Product Cost a. Absorption costing ??? b. Variable costing $18

2. Prepare variable costing income statements for July and August. These are correct

Denton Company Variable Costing Income Statement July August Saless $1,000,000 $1,400,000 Variable expenses: Variable cost of goods sold 360,000 504,000 Variable selling and administrative expenses 60,000 84,000 Total variable expenses 420,000 588,000 Contribution margin 580,000 812,000 Fixed expenses: Fixed manufacturing overhead 120,000 120,000 Fixed selling and administrative expenses 166,000 166,000 Total fixed expense 286,000 286,000 Net operating income (loss) $294,000 $526,000

3. Reconcile the variable costing and absorption costing net operating incomes. (Enter any losses or deductions as a negative value.) Not quite sure here either, please explain

	Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes July August Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss)

Answer 1