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 2 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 175,000 Total fixed cost per month $ 247,000 The product sells for $47 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced Units Sold July 18,000 14,000 August 18,000 22,000 The company’s Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 658,000 $ 1,034,000 Cost of goods sold 308,000 484,000 Gross margin 350,000 550,000 Selling and administrative expenses 203,000 219,000 Net operating income $ 147,000 $ 331,000 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.

Answer 1