Question

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

Variable costs per unit:
Direct materials			$	6
Direct labor				9
Variable manufacturing overhead				2
Variable selling and administrative				2
Total variable cost per unit			$	19
Fixed costs per month:
Fixed manufacturing overhead	$	81,000
Fixed selling and administrative		160,000
Total fixed cost per month	$	241,000

The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	27,000	23,000
August	27,000	31,000

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

	July			August
Sales	$	1,104,000		$	1,488,000
Cost of goods sold		460,000			620,000
Gross margin		644,000			868,000
Selling and administrative expenses		206,000			222,000
Net operating income	$	438,000		$	646,000

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.

ormat variable costing income statements for July and August.

	Denton Company Variable Costing Income Statement July August Net operating income (loss)

use the above table as it is to prepare the income statement please

3. Reconcile the variable costing and absorption costing net operating incomes.

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)

use the above table as it is please to reconcile

thank you

Answer 1

	Variable costing	Year 1	Year 2
	Direct material	6	6
	Direct labor	9	9
	Variable manufacturing overheads	2	2
	Product cost per unit	17	17
	Units manufactured	27000	27000
	Units sold	23,000	31,000
	Income statement
	Sales revenue	1104000	1488000
Less	Variable expense
	Variable cost of goods sold	391000	527000
	Variable selling and admin expense	46000	62000
	Total variable expense	437000	589000
	Contribution margin	667000	899000
Less	Fixed cost
	Fixed manufacturing expense	81000	81000
	Fixed Admin expense	160000	160000
	Total fixed expenses	241000	241000
	Net operating income	426000	658000
1	Absorption costing	Year 1	Year 2
	Direct material	6	6
	Direct labor	9	9
	Variable manufacturing overheads	2	2
	Fixed manufacturing	3	3	(81000/27000)
	Total product cost	20	20
	Units produced	27000	27000
	Units sold	23,000	31,000
	Income statement	1st year	2nd year
	Sales revenue	1104000	1488000
	cost of goods sold
	Beginning inventory	0	80000
	cost of goods manufactured	540000	540000
Add	Goods available for sale	540000	620000
	Ending inventory	80000	0
Less	Cost of goods sold	460000	620000
	Gross profit	644000	868000
	Selling and admin expenses
Less	Variable selling and admin expense	46000	62000
	Fixed Admin expense	160000	160000
	Total Selling and admin expenses	206000	222000
	Net operating income	438000	646000
	Net operating income absorption costing	438000	646000
Less	Ending inventory Fixed manufacturing	-12000	12000	(3*4000)
	Net operating income variable costing	426000	658000