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 $52 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 $ 4 Direct labor 12 Variable manufacturing overhead 3 Variable selling and administrative 1 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 162,000 Fixed selling and administrative 169,000 Total fixed cost per month $ 331,000

Explanation / Answer

1. Determine the unit product cost under:

2. Prepare contribution format variable costing income statements for July and August.

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

Absorption costing Variable costing Direct materials 4 4 Direct labor 12 12 Variable manufacturing overhead 3 3 Fixed manufacturing overhead 6 Unit product cost 25 19

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