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Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs...

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Accounting

Denton Company manufactures and sells a single product. Costdata for the product are given:

Variable costs per unit:
Direct materials$3
Direct labor11
Variable manufacturing overhead3
Variable selling and administrative2
Total variable cost per unit$19
Fixed costs per month:
Fixed manufacturing overhead$180,000
Fixed selling and administrative166,000
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
July30,00026,000
August30,00034,000

The company’s Accounting Department has prepared the followingabsorption costing income statements for July and August:

JulyAugust
Sales$1,326,000$1,734,000
Cost of goods sold598,000782,000
Gross margin728,000952,000
Selling and administrative expenses218,000234,000
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.

Answer & Explanation Solved by verified expert
4.4 Ratings (719 Votes)

1.

Denton Company
Variable Costing Income Statement
July August
Sales 1326000 1734000
Variable expenses:
Cost of goods sold 442000 578000
Selling and administrative expenses 52000 68000
Total variable expenses 494000 646000
Contribution margin 832000 1088000
Fixed expenses:
Manufacturing overhead 180000 180000
Selling and administrative expenses 166000 166000
Total fixed expenses 346000 346000
Net operating income (loss) 486000 742000

Working:

Absorption Variable
Costing Costing
Direct materials 3 3
Direct labor 11 11
Variable manufacturing overheads 3 3
Fixed manufacturing overheads ($180000/30000) 6
Per unit cost $ 23 17

2.

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
July August
Variable costing net operating income (loss) 486000 742000
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing (4000 x $6) 24000
Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing (4000 x $6) 24000
Absorption costing net operating income (loss) 510000 718000

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