Denton Company manufactures and sells a single product. Cost data for the produc

Question

Denton Company manufactures and sells a single product. Cost data for the product are given below Variable costs per unit: $3 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 4 Total variable costs per unit $19 Fixed costs per month Fixed manufacturing overhead Fixed selling and administrative $ 84,000 166,000 lotal fixed cost per month S 250,000 The product sells for $54 per unit. Production and sales data for July and August, the first two months of operations, are as follows Units Produced 21,000 21,000 Units Sold 17,000 25,000 July August The company's Accounting Department has prepared absorption costing income statements for July and August as presented below

Explanation / Answer

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

The product sells for $54 per unit. Production and sales data for July and August, the first two months of operations, are as follows:

The company's Accounting Department has prepared absorption costing income statements for
July and August as presented below:

1.Determine the unit product cost under absorption costing and variable costing.

2.Prepare contribution format variable costing income statements for July and August.

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

Absorption Costing

2) contribution format variable costing income statements for July and August.

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

Variable Costs per unit Direct Materials $3 Direct Labour $11 Variable manufacturing overhead $4 Variable selling and administrative $1 Total Variable Cost $19 Fixed costs per month: Fixed manufacturing overhead $84,000 Fixed selling and adminstrative $166,000 Total Fixed Cost per Month $250,000

The product sells for $54 per unit. Production and sales data for July and August, the first two months of operations, are as follows:

Units Produced Units Sold July 21,000 17000.00 August 21,000 25,000

The company's Accounting Department has prepared absorption costing income statements for
July and August as presented below:

July August Sales $918,000 $1,350,000 Cost of Good Sold $374,000 $550,000 Gross Margin $544,000 $800,000 Selling and administrative expenses $183,000 $191,000 Net operating Income $361,000 $609,000 Required

1.Determine the unit product cost under absorption costing and variable costing.

2.Prepare contribution format variable costing income statements for July and August.

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

1) Unit product cost under absorption costing and variable costing. Variable Costing

Absorption Costing

Direct Materials $3 $3 Direct Labour $11 $11 Variable manufacturing overhead $4 $4 Fixed manufacturing overhead($84,000/21000) $4 Unit Product Cost $18 $22

2) contribution format variable costing income statements for July and August.

Denton Company variable costing income statements July August Sales $918,000 $1,350,000 Less: Variable Expenses Variable cost of good sold ($18) $306,000 $450,000 Variable selling and administrative $17,000 $25,000 Total Variable Cost $323,000 $475,000 Contribution Margin $595,000 $875,000 Fixed costs per month: Fixed manufacturing overhead $84,000 $84,000 Fixed selling and adminstrative $266,000 $266,000 Total Fixed Cost per Month $350,000 $350,000 Net Operating Income (Loss) $329,000 $525,000 3) Reconcile the variable costing and absorption costing net operating income. July August variable costing net operating income (Loss) $329,000 $525,000 Add: Fixed Manufacturing Overhead Costs $32,000 $84,000 Absorbtion costing net operating Income/(Loss) $361,000 $609,000

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