Denton Company manufactures and sells a single product. Cost data for the product are given:Variable costs per unit: Direct materials $7Direct labor 10Variable manufacturing overhead 5Variable selling and administrative 3Total variable cost per unit $25Fixed costs per month: Fixed manufacturing overhead$315,000Fixed selling and administrative 245,000Total fixed cost per month$560,000 The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow:UnitsProducedUnitsSoldJuly17,50015,000August17,50020,000The company’s Accounting Department has prepared the following absorption costing income statements for July and August:Sales$900,000 $1,200,000Cost of goods sold 600,000 800,000Gross margin 300,000 400,000Selling and administrative expenses 290,000 305,000Net operating income$10,000 $95,0001. Calculate the unit product cost under:a. Absorption costing.b. Variable costing.2. Calculate variable costing income statements for July and August.3. Compute the variable costing and absorption costing net operating incomes.

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Answered: 1. Calculate the unit product cost…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:
Direct materials			$	7
Direct labor				10
Variable manufacturing overhead				5
Variable selling and administrative				3
Total variable cost per unit			$	25
Fixed costs per month:
Fixed manufacturing overhead	$	315,000
Fixed selling and administrative		245,000
Total fixed cost per month	$	560,000

The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow:

Units Produced	Units Sold
July	17,500	15,000
August	17,500	20,000

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

Sales	$	900,000	$	1,200,000
Cost of goods sold		600,000		800,000
Gross margin		300,000		400,000
Selling and administrative expenses		290,000		305,000
Net operating income	$	10,000	$	95,000

1. Calculate the unit product cost under:

a. Absorption costing.

b. Variable costing.

2. Calculate variable costing income statements for July and August.

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

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