Question

Denton Company manufactures and sells a single product. Cost data for the product are given: varirect materials Direct laborufacturing overhead sve i Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 84,000 169,000 $ 253,000 The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow: July August Units Produced 21,000 21,000 Units Sold 17,000 25,000

Answer 1

Solution 1a:

Computation of Unit Product Cost - Absorption Costing
Particulars	Per unit
Unit Product Cost:
Direct material	$4.00
Direct Labor	$10.00
Variable manufacturing overhead	$3.00
Fixed manufacturing overhead ($84,000 / 21000)	$4.00
Unit Product Cost	$21.00

solution 1b:

Computation of Unit Product Cost - Variable Costing
Particulars	Per unit
Unit Product Cost:
Direct material	$4.00
Direct Labor	$10.00
Variable manufacturing overhead	$3.00
Unit product cost	$17.00

solution 2:

Denton company
Variable Costing income statement For the month of July and August
Particulars	July	August
Sales	$782,000.00	$1,150,000.00
Variable Cost:
Direct material	$68,000.00	$100,000.00
Direct Labor	$170,000.00	$250,000.00
Variable manufacturing overhead	$51,000.00	$75,000.00
Variable selling and administrative	$17,000.00	$25,000.00
Total Variable Costs	$306,000.00	$450,000.00
Contribution	$476,000.00	$700,000.00
Fixed Costs:
Fixed Manufacturing Overhead	$84,000.00	$84,000.00
Fixed Selling & Administrative Expenses	$169,000.00	$169,000.00
Total Fixed Costs	$253,000.00	$253,000.00
Net Income	$223,000.00	$447,000.00

Solution 3:

Reconciliation of Net Operating income under absorption costing & Variable Costing
Particulars	July	August
Variable costing net operating income (loss)	$223,000.00	$447,000.00
Add : Fixed manufacturing overhead deferred in inventory ($4*4000)	$16,000.00	$0.00
Less: Fixed manufacturing overhead released in inventory	$0.00	$16,000.00
Net Operating Income - Absorption Costing	$239,000.00	$431,000.00