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 $47 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.

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

Variable costs per unit: Direct materials $ 5 Direct labor 10 Variable manufacturing overhead 2 Variable selling and administrative 3 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 90,000 Fixed selling and administrative 166,000 Total fixed cost per month $ 256,000

Explanation / Answer

Construct The Absorption Costing Unit Product Cost Direct Material 5 Direct labour 10 Variable Manufacturing overheads 2 Fixed Manufacturing overheads 5.00 Absorption costing unit prroduct cost 22.00 Compute the Variable costing Unit Product cost Direct Material 5 Direct labour 10 Variable Manufacturing overheads 2 Variable costing unit prroduct cost 17 Construct The Variable Costing Income Statement under FIFO JULY AUGUST Sales 658,000 1,034,000 Less: Variable cost    variable cost of goods sold 238,000 374,000    Variable selling expense 42,000 280,000 66,000 440,000 Contribution margin 378,000 594,000 Fixed expense:    Fixed Manufacturing overheads 90,000 90,000    Fixed selling expense 166,000 166,000 Net operating Income 122,000 338,000 Reconcilitaion Statement: July Net Income as per Vvarriable costing: 122000 Add: Fixed OH deferred (4000 units @5) 20000 Net Income as per absorption costing 142000 Aug: Net Income as per Vvarriable costing: 338000 Less: Fixed OH released (4000 units @5) 20000 Net Income as per absorption costing 318000

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