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Question - Denton Company manufactures and sells a single product. Cost data for the product are given:
Variable costs per unit: Direct materials
$5
Direct labor
10
Variable manufacturing overhead
2
Variable selling and administrative
1
Total variable cost per unit
$18
Fixed costs per month: Fixed manufacturing overhead
$90,000
Fixed selling and administrative
169,000
Total fixed cost per month
$259,000
The product sells for $52 per unit. Production and sales data for July and August, the first two months of operations, follow:
Units Produced
Units Sold
July
18,000
14,000
August
22,000
The company's Accounting Department has prepared the following absorption costing income statements for July and August:
Sales
$728,000
$1,144,000
Cost of goods sold
308,000
484,000
Gross margin
420,000
660,000
Selling and administrative expenses
183,000
191,000
Net operating income
$237,000
$469,000
Required -
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare variable costing income statements for July and August.
3. Reconcile the variable costing and absorption costing net operating incomes.
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