Denton Company manufactures and sells a single product. Cost data for the produc
ID: 2559506 • Letter: D
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:
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. (Enter any losses or deductions as a negative value.)
Variable costs per unit: Direct materials $ 3 Direct labor 9 Variable manufacturing overhead 3 Variable selling and administrative 3 Total variable cost per unit $ 18 Fixed costs per month: Fixed manufacturing overhead $ 120,000 Fixed selling and administrative 163,000 Total fixed cost per month $ 283,000Explanation / Answer
Answer 1-a. Calculation of Unit Per Cost Under Absorption Costing July Aug Variable Manufacturing Costs per Unit Direct Materials 3.00 3.00 Direct Labor 9.00 9.00 Variable MOH 3.00 3.00 Fixed Manufacturing Cost - $120,000 / 30,000 Units 4.00 4.00 Cost per Unit 19.00 19.00 Answer 1-b. Calculation of Unit Per Cost Under Variable Costing July Aug Variable Manufacturing Costs Direct Materials 3.00 3 Direct Labor 9.00 9 Variable MOH 3.00 3 Cost per Unit 15 15 Note: Selling and administrative expenses (both variable and fixed) are not relevant for the computation of unit product cost. Answer 2. Denton Company Income Statement Under Variable Costing July Aug Units Sold 26,000 34,000 Sales 1,222,000 1,598,000 Less: Variable Expenses Cost of Goods Sold (390,000) (510,000) Selling & Admn. Exp. (78,000) (102,000) Contribution 754,000 986,000 Less: Fixed Expenses Fixed MOH (120,000) (120,000) Fixed Selling & Admn. Exp (163,000) (163,000) Net Income 471,000 703,000 Answer 2-b. Income Statement Under Absorption Costing July Aug Units Sold 26,000 34,000 Sales 1,222,000 1,598,000 Less: Cost of Goods Sold (494,000) (646,000) Gross Profit 728,000 952,000 Less: Selling & Admn. Exp Variable (78,000) (102,000) Fixed (163,000) (163,000) Net Income 487,000 687,000 Cost of Goods Sold Year 1 = 26,000 Units X $19 494,000 Year 2 Goods Manufactured in Jul - 4000 Units X $19 76,000 Goods Manufactured in Aug - 30,000 Units X $19 570,000 Total Cost of goods Sold 646,000 Answer 3. Reconciliation of Variable Costing & Absorption Costing Net Operating Income Jul Aug Profit as per Variable Costing 471,000 703,000 Add (Deduct) Fixed MOH deferred (released from) Inventory under Absorption Costing 16,000 (16,000) (4,000 Units X $4) (4,000 Units X $4) Profit as per Absorption Costing 487,000 687,000
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