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 4 Variable selling and administrative 1 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 126,000 Fixed selling and administrative 169,000 Total fixed cost per month $ 295,000 The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced Units Sold July 21,000 17,000 August 21,000 25,000 The company’s Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 782,000 $ 1,150,000 Cost of goods sold 425,000 625,000 Gross margin 357,000 525,000 Selling and administrative expenses 186,000 194,000 Net operating income $ 171,000 $ 331,000 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.

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			$	5
Direct labor				10
Variable manufacturing overhead				4
Variable selling and administrative				1
Total variable cost per unit			$	20
Fixed costs per month:
Fixed manufacturing overhead	$	126,000
Fixed selling and administrative		169,000
Total fixed cost per month	$	295,000

The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	21,000	17,000
August	21,000	25,000

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

	July		August
Sales	$	782,000		$	1,150,000
Cost of goods sold		425,000			625,000
Gross margin		357,000			525,000
Selling and administrative expenses		186,000			194,000
Net operating income	$	171,000		$	331,000

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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