Denton Company manufactures and sells a single product. Costdata for the product are given:
| | | | |
| Variable costs per unit: | | | | |
| Direct materials | | | $ | 4 |
| Direct labor | | | | 10 |
| Variable manufacturing overhead | | | | 3 |
| Variable selling and administrative | | | | 2 |
| Total variable cost per unit | | | $ | 19 |
| Fixed costs per month: | | | | |
| Fixed manufacturing overhead | $ | 60,000 |
| Fixed selling and administrative | | 166,000 |
| Total fixed cost per month | $ | 226,000 |
|
The product sells for $53 per unit. Production and sales datafor July and August, the first two months of operations,follow:
| Units
Produced | Units
Sold |
| July | 15,000 | 11,000 |
| August | 15,000 | 19,000 |
|
The company’s Accounting Department has prepared the followingabsorption costing income statements for July and August:
| July | | August |
| Sales | $ | 583,000 | | $ | 1,007,000 |
| Cost of goods sold | | 231,000 | | | 399,000 |
| Gross margin | | 352,000 | | | 608,000 |
| Selling and administrative expenses | | 188,000 | | | 204,000 |
| Net operating income | $ | 164,000 | | $ | 404,000 |
|
Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare variable costing income statements for July andAugust.
3. Reconcile the variable costing and absorption costing netoperating incomes.
