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5.2
Denton Company manufactures and sells a single product. Cost data for the product are given below:
| | | | |
| 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 | $ | 120,000 | |
| Fixed selling and administrative | | 163,000 | |
| Total fixed cost per month | $ | 283,000 | |
| |
The product sells for $51 per unit. Production and sales data for July and August, the first two months of operations, are as follows:
| | Units Produced | | Units Sold |
| July | | 30,000 | | | | 26,000 | |
| August | | 30,000 | | | | 34,000 | |
| |
The companys Accounting Department has prepared absorption costing income statements for July and August as presented below:
| | July | | August |
| Sales | $ | 1,326,000 | | | $ | 1,734,000 | |
| Cost of goods sold | | 520,000 | | | | 680,000 | |
| Gross margin | $ | 806,000 | | | $ | 1,054,000 | |
| Selling and administrative expenses | | 215,000 | | | | 231,000 | |
| Net operating income | $ | 591,000 | | | $ | 823,000 | |
| |
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