Denton Company manufactures and sells a single product. Cost data for the product are given below: 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 absorption costing income statements for July and August as presented below: July 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 Required: Reconcile the variable costing and absorption costing net operating income
Denton Company manufactures and sells a single product. Cost data for the product are given
below:
Variable costs per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . $ 7
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Variable manufacturing
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 absorption costing income statements for July
and August as presented below:
July 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
Required:
Reconcile the variable costing and absorption costing net operating income figures.
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