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: Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit 10 $ 17 Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 180,000 169,000 349,000 The product sells for $50 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced 30,000 30,000 Units Sold 26,000 34,000 July August The company's Accounting Department has prepared the following absorption costing income statements for July and August July August Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $1,300,000 1,700,000 748,000 952,000 572,000 728,000 195,000 203100 $ 533,000 749,000

Explanation / Answer

1 Unit Cost: Absorption Variable Direct Material 4.00 4.00 Fixed MOH PU: Direct Labor 10.00 10.00 Fixed MOH 180000 Variable MOH 2.00 2.00 Units Produced 30000 Fixed MOH 6.00 0.00 Fixed MOH PU: 6.00 Total Unit Costs: 22 16 Note: Variable & Fixed S&A Costs are not part of Unit Costs 2 Denton Company Variable Costing Income Statement July August Sales 1300000 1700000 Variable Costs: COGS 416000 544000 Gross Contribution Margin 884000 1156000 Less: Variable S&A 26000 34000 Contribution Margin 858000 1122000 Less: Period based Expense Fixed Manufacturing OH 180000 180000 Fixed S&A OH 169000 169000 Total Fixed Costs 349000 349000 Net Operating Income 509000 773000 3 Reco of Variable Costing and Absorption Costing NOI July August Variable Costing NOI 509000 773000 Add: Fixed MOH Cost Deferred in(Released from) Inventory under Absorption Costing 24000 -24000 Absorption Costing NOI 533000 749000 Working Note: July Units Produced 30000 Less: Units Sold 26000 Closing Inventory 4000 Fixed MOH PU: 6.00 Cost Deffered 24000 Working Note: August Units Produced 30000 Less: Units Sold 34000 Units Used from Opening Inventory 4000 Fixed MOH PU: 6.00 Cost Released -24000

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