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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter5: Process Costing

Section: Chapter Questions

Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...

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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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