Question

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 per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 19 $ 108,000 169,000 $ 277,000 The product sells for $46 per unit. Production and sales data for July and August, the first two months of operations, follow. Units Produced 27,000 27,000 Units Sold 23,000 31,000 July August The company's Accounting Department has prepared the following absorption costing income statements for July and August Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July $1,058,000 460,000 598,000 238,000 360,000 August $1,426,000 620,000 806,000 262,000 $ 544,000 Required: 1. Determine the unit product cost under:

Answer 1

Calculation of unit product cost

	Absorption	Variable
Direct material	4	4
Direct Labour	10	10
Variable manufacturing overhead	2	2
Fixed manufacturing overhead	4
	20	16

Fixed manufacturing overhead cost per unit = Fixes manufacturing overhead/units produced

= 108,000/27,000 = 4/-

Variable costing income statement

	July	August
Sales	1,058,000	1,426,000
Less:Variable expenses
Variable cost of goods sold	368,000	496,000
Variable selling and administration expenses	69,000	93,000
Total variable expenses	437,000	589,000
Contribution margin	598,000	806,000
Less :Fixed expenses
Fixed manufacturing overhead	108,000	108,000
Fixed selling and administration expenses	169,000	169,000
Total fixed expenses	277,000	277,000
Net operating income	344,000	560,000

Reconciliation of variable costing and absorption costing net operating income

	July	August
Variable costing net operating income	344,000	560,000
Fixed manufacturing overhead deferred in inventory(4,000×4)	16,000
Fixed manufacturing overhead released from inventory(4,000×4)		(16,000)
Net operating income under absorption costing	360,000	544,000

____×____

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