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 3 Variable selling and administrative 1 Total variable cost per unit $ 19 Fixed costs per month: Fixed manufacturing overhead $ 72,000 Fixed selling and administrative 166,000 Total fixed cost per month $ 238,000 The product sells for $47 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced Units Sold July 18,000 14,000 August 18,000 22,000 The company’s Accounting Department has prepared the following absorption costing income statements for July and August: July August Sales $ 658,000 $ 1,034,000 Cost of goods sold 308,000 484,000 Gross margin 350,000 550,000 Selling and administrative expenses 180,000 188,000 Net operating income $ 170,000 $ 362,000 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				3
Variable selling and administrative				1
Total variable cost per unit			$	19
Fixed costs per month:
Fixed manufacturing overhead	$	72,000
Fixed selling and administrative		166,000
Total fixed cost per month	$	238,000

The product sells for $47 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	18,000	14,000
August	18,000	22,000

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

	July		August
Sales	$	658,000		$	1,034,000
Cost of goods sold		308,000			484,000
Gross margin		350,000			550,000
Selling and administrative expenses		180,000			188,000
Net operating income	$	170,000		$	362,000

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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