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:

  

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:

Variable costs per unit: Direct materials $ 5 Direct labor 12 Variable manufacturing overhead 3 Variable selling and administrative 2 Total variable cost per unit $ 22 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 166,000 Total fixed cost per month $ 238,000 Required 1. Determine the unit product cost under absorption costing and variable costing. Unit Pr Cost a. Absorption costing b. Variable costing 2. Prepare contribution format variable costing income statements for July and August. Denton Company Variable Costing Income Statement July August Variable expenses Total variable expenses Fixed expenses Total fixed expenses Net operating income (loss) 3. Reconcile the variable costing and absorption costing net operating income (loss) figures. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes July August Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss)

Explanation / Answer

1 Absorption costing Variable costing Direct materials 5 5 Direct labor 12 12 Variable manufacturing overhead 3 3 Fixed manufacturing overhead 3 Unit product cost 23 20 2 Year 1 Year 2 Sales 1080000 $1,512,000 Variable expenses: Variable cost of goods sold 400000 560000 Variable selling and administrative expenses 40000 56000 Total Variable expenses 440000 616000 Contribution margin 640000 $896,000 Fixed expenses: Fixed manufacturing overhead 72000 72000 Fixed selling and administrative expenses 166000 166000 Total Fixed expenses 238000 238000 Net operatimg income(loss) $402,000 $658,000 3 Year 1 Year 2 Variable costing net income $402,000 $658,000 Add(deduct) fixed manufacturing overhead deferred in(released) 12000 -12000 Absorption costing net operating income $414,000 $646,000

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