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 $51 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.

Variable costs per unit: Direct materials $ 5 Direct labor 12 Variable manufacturing overhead 4 Variable selling and administrative 1 Total variable cost per unit $ 22 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 175,000 Total fixed cost per month $ 247,000

Explanation / Answer

SOLUTION

1. Unit product cost under Absorption costing and Variable costing

2. Variable costing income statements

Absorption costing ($) Variable costing ($) Direct materials 5 5 Direct labor 12 12 Variable manufacturing overhead 4 4 Fixed manufacturing overhead ($72,000/18,000) 4 0 Unit product cost 25 21

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