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Problem 7-22 Variable Costing Income Statements; Income Reconciliation [LO7-1, LO7-2, LO7-3]
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 | | | | 2 |
| Variable selling and administrative | | | | 2 |
| Total variable cost per unit | | | $ | 19 |
| Fixed costs per month: | | | | |
| Fixed manufacturing overhead | $ | 120,000 |
| Fixed selling and administrative | | 172,000 |
| Total fixed cost per month | $ | 292,000 |
| |
The product sells for $48 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 companys Accounting Department has prepared the following absorption costing income statements for July and August:
| | July | | August |
| Sales | $ | 960,000 | | $ | 1,344,000 |
| Cost of goods sold | | 440,000 | | | 616,000 |
| Gross margin | | 520,000 | | | 728,000 |
| Selling and administrative expenses | | 212,000 | | | 228,000 |
| Net operating income | $ | 308,000 | | $ | 500,000 |
| |
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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