The product sells for $54 per unit. Production and sales data for July and Augus

ID: 2426453 • Letter: T

Question

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.

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

Explanation / Answer

unit product cost under absoprtion costing:

direct materials $4

direct labor $12

Variable manufacturing overhead $4

Fixed manufacturing overhead (108,000/27,0000) $4

Total unit product cost $$24

unit product cost under variable costing $20 per unit

2)contribution format variable costing income statment for july - August

July

Sales $1,242,000

less:cost of goods sold (23,000*20) 460,000

less:Selling variable (23,000*1) 23,000

Contribution margin $759,000

less:Fixed manufacturing (108,000)

fixed selling (175,000)

Net income 476,000

August

Sales $1,674,000

less:cost of goods sold (31,000 * 20) 6,20,000

Selling expense (31,000*1) 31,000

Contribution marginn $1,023,000

less:Fixed manufacturing 108,000

fixed selling 175,000

Net income $740,000

3( Reconcilation

Net income from variable costing $476,000

add:deferred fixed cost 4,000*4 16,000

net income under absorption costing $492,000

august

income under variable costing $740,000

less;beginning inventory(4000*4) 16,000

Net income $724,000

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