Denton Company manufactures and sells a single product. Costdata for the product are given:
| | | | |
| Variable costs per unit: | | | | |
| Direct materials | | | $ | 5 |
| Direct labor | | | | 12 |
| Variable manufacturing overhead | | | | 3 |
| Variable selling and administrative | | | | 3 |
| Total variable cost per unit | | | $ | 23 |
| Fixed costs per month: | | | | |
| Fixed manufacturing overhead | $ | 135,000 |
| Fixed selling and administrative | | 169,000 |
| Total fixed cost per month | $ | 304,000 |
|
The product sells for $49 per unit. Production and sales datafor July and August, the first two months of operations,follow:
| Units
Produced | Units
Sold |
| July | 27,000 | 23,000 |
| August | 27,000 | 31,000 |
|
The company’s Accounting Department has prepared the followingabsorption costing income statements for July and August:
| July | | August |
| Sales | $ | 1,127,000 | | $ | 1,519,000 |
| Cost of goods sold | | 575,000 | | | 775,000 |
| Gross margin | | 552,000 | | | 744,000 |
| Selling and administrative expenses | | 238,000 | | | 262,000 |
| Net operating income | $ | 314,000 | | $ | 482,000 |
|
Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare contribution format variable costing incomestatements for July and August.
3. Reconcile the variable costing and absorption costing netoperating incomes.
