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

Question

5.2

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

  

The product sells for $51 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:

Variable costs per unit: Direct materials $ 5 Direct labor 9 Variable manufacturing overhead 2 Variable selling and administrative 2 Total variable cost per unit $ 18 Fixed costs per month: Fixed manufacturing overhead $ 120,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 283,000

Explanation / Answer

1 Unit product cost Absorption costing 20 =5+9+2+(120000/30000) Variable costing 16 =5+9+2 2 July August Sales 1326000 $1,734,000 Variable expenses: Variable cost of goods sold 416000 544000 Variable selling and administrative expenses 52000 68000 Total Variable expenses 468000 612000 Contribution margin 858000 1122000 Fixed expenses: Fixed manufacturing overhead 120000 120000 Fixed selling and administrative expenses 163000 163000 Total Fixed expenses 283000 283000 Net operating income(loss) $575,000 $839,000 3 July August Variable costing net income $575,000 $839,000 Add(deduct) fixed manufacturing overhead deferred in(released) 16000 -16000 Absorption costing net operating income $591,000 $823,000

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