Denton Company manufactures and sells a single product. Costdata for the product are given:
| | | | |
| Variable costs per unit: | | | | |
| Direct materials | | | $ | 3 |
| Direct labor | | | | 11 |
| Variable manufacturing overhead | | | | 3 |
| Variable selling and administrative | | | | 2 |
| Total variable cost per unit | | | $ | 19 |
| Fixed costs per month: | | | | |
| Fixed manufacturing overhead | $ | 180,000 |
| Fixed selling and administrative | | 166,000 |
| Total fixed cost per month | $ | 346,000 |
|
The product sells for $51 per unit. Production and sales datafor July and August, the first two months of operations,follow:
| Units
Produced | Units
Sold |
| July | 30,000 | 26,000 |
| August | 30,000 | 34,000 |
|
The company’s Accounting Department has prepared the followingabsorption costing income statements for July and August:
| July | | August |
| Sales | $ | 1,326,000 | | $ | 1,734,000 |
| Cost of goods sold | | 598,000 | | | 782,000 |
| Gross margin | | 728,000 | | | 952,000 |
| Selling and administrative expenses | | 218,000 | | | 234,000 |
| Net operating income | $ | 510,000 | | $ | 718,000 |
|
Required:
1. Prepare contribution format variable costing incomestatements for July and August.
2. Reconcile the variable costing and absorption costing netoperating incomes.
