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:

The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

Required:

1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

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

ormat variable costing income statements for July and August.

use the above table as it is to prepare the income statement please

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

use the above table as it is please to reconcile

thank you

Variable costs per unit: Direct materials $ 6 Direct labor 9 Variable manufacturing overhead 2 Variable selling and administrative 2 Total variable cost per unit $ 19 Fixed costs per month: Fixed manufacturing overhead $ 81,000 Fixed selling and administrative 160,000 Total fixed cost per month $ 241,000

Explanation / Answer

Variable costing Year 1 Year 2 Direct material 6 6 Direct labor 9 9 Variable manufacturing overheads 2 2 Product cost per unit 17 17 Units manufactured 27000 27000 Units sold 23,000 31,000 Income statement Sales revenue 1104000 1488000 Less Variable expense Variable cost of goods sold 391000 527000 Variable selling and admin expense 46000 62000 Total variable expense 437000 589000 Contribution margin 667000 899000 Less Fixed cost Fixed manufacturing expense 81000 81000 Fixed Admin expense 160000 160000 Total fixed expenses 241000 241000 Net operating income 426000 658000 1 Absorption costing Year 1 Year 2 Direct material 6 6 Direct labor 9 9 Variable manufacturing overheads 2 2 Fixed manufacturing 3 3 (81000/27000) Total product cost 20 20 Units produced 27000 27000 Units sold 23,000 31,000 Income statement 1st year 2nd year Sales revenue 1104000 1488000 cost of goods sold Beginning inventory 0 80000 cost of goods manufactured 540000 540000 Add Goods available for sale 540000 620000 Ending inventory 80000 0 Less Cost of goods sold 460000 620000 Gross profit 644000 868000 Selling and admin expenses Less Variable selling and admin expense 46000 62000 Fixed Admin expense 160000 160000 Total Selling and admin expenses 206000 222000 Net operating income 438000 646000 Net operating income absorption costing 438000 646000 Less Ending inventory Fixed manufacturing -12000 12000 (3*4000) Net operating income variable costing 426000 658000

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