Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs
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Question:
Denton Company manufactures and sells a single product. Cost data for the product are given:
Variable costs per unit: | ||||
Direct materials | $ | 5 | ||
Direct labor | 9 | |||
Variable manufacturing overhead | 2 | |||
Variable selling and administrative | 2 | |||
Total variable cost per unit | $ | 18 | ||
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 $53 per unit. Production and sales data for July and August, the first two months of operations, follow:
Units Produced | Units Sold | |
July | 24,000 | 20,000 |
August | 24,000 | 28,000 |
The company’s Accounting Department has prepared the following absorption costing income statements for July and August:
July | August | ||||
Sales | $ | 1,060,000 | $ | 1,484,000 | |
Cost of goods sold | 380,000 | 532,000 | |||
Gross margin | 680,000 | 952,000 | |||
Selling and administrative expenses | 206,000 | 222,000 | |||
Net operating income | $ | 474,000 | $ | 730,000 | |
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.
Related Book For
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
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