Reference no: EM132528700

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

Variable costs per unit:

Direct materials $7

Direct labor 10

Variable manufacturing overhead 5

Variable selling and administrative 3

Total variable cost per unit $25

Fixed costs per month:

Fixed manufacturing overhead $315,000

Fixed selling and administrative 245,000

Total fixed cost per month $560,000

The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow:

                  Units Produced         Units Sold

July                17,500               15,000

August            17,500                 20,000

The company's Accounting Department has prepared the following absorption costing income statements for July and August:

                                                                     July                         August

Sales                                          $900,000               $1,200,000

Cost of goods sold                              600,000                800,000

Gross margin                                   300,000                  400,000

Selling and administrative expenses     290,000                305,000

Net operating income                          $10,000            $95,000

Required:

Question 1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

Question 2. Prepare variable costing income statements for July and August.

Question 3. Reconcile the variable costing and absorption costing net operating incomes.