In: Finance
Denton Company manufactures and sells a single product. Cost data for the product are given:
Variable costs per unit: | ||||
Direct materials | $ | 4 | ||
Direct labor | 10 | |||
Variable manufacturing overhead | 3 | |||
Variable selling and administrative | 3 | |||
Total variable cost per unit | $ | 20 | ||
Fixed costs per month: | ||||
Fixed manufacturing overhead | $ | 105,000 | ||
Fixed selling and administrative | 163,000 | |||
Total fixed cost per month | $ | 268,000 | ||
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 | 21,000 | 17,000 |
August | 21,000 | 25,000 |
The company’s Accounting Department has prepared the following absorption costing income statements for July and August:
July | August | ||||
Sales | $ | 850,000 | $ | 1,250,000 | |
Cost of goods sold | 374,000 | 550,000 | |||
Gross margin | 476,000 | 700,000 | |||
Selling and administrative expenses | 214,000 | 238,000 | |||
Net operating income | $ | 262,000 | $ | 462,000 | |
Required:
1. Determine the unit product cost under:
a. 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.