Question

Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 7 Direct labor 10 Variable manufacturing overhead 5 Variable selling and administrative 3 Total variable cost per unit $ 25 Fixed costs per month: Fixed manufacturing overhead $ 315,000 Fixed selling and administrative 245,000 Total fixed cost per month $ 560,000 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 company’s Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 900,000 $ 1,200,000 Cost of goods sold 600,000 800,000 Gross margin 300,000 400,000 Selling and administrative expenses 290,000 305,000 Net operating income $ 10,000 $ 95,000 Required: 1. Determine the unit product cost under: a. Absorption costing. b. Variable costing. 2. Prepare contribution format variable costing income statements for July and August. 3. Reconcile the variable costing and absorption costing net operating incomes.

Answer 1