Question

2 Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost 10 6 points per uni $ 20 Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 81,000 169.000 eBook $ 250,000 Print The product sells for $45 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced 27,000 27,000 Units Sold 23,000 31,000 References July August The company's Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $1,035,000 1,395,000 620,000 775,000 262,000 $ 337,000 513,000 460,000 575,000 238,000 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.

Answer 1

SOLUTION:

1
a	Absorption costing	20	=3+10+4+(81000/27000)
b	Variable costing	17	=3+10+4
2
	Variable Costing Income Statement
	July	August
Sales	1035000	1395000
Variable expenses:
Variable cost of goods sold	391000	527000
Variable selling and administrative expenses	69000	93000
Total variable expenses	460000	620000
Contribution margin	575000	775000
Fixed expenses:
Fixed manufacturing overhead	81000	81000
Fixed selling and administrative expenses	169000	169000
Total fixed expenses	250000	250000
Net operating income (loss)	325000	525000
3
Variable costing net operating income (loss)	325000	525000
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory	12000	-12000
Absorption costing net operating income (loss)	337000	513000