Task: Prepare and Reconcile Variable Costing Statement
Denton Company Manufactures and sells single products. Cost data for the product are given below:
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Variable Cost Per Unit:
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Direct Material
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$7.00
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Direct Labor
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10.00
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Variable Manufactured Ovehead
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5.00
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Variable Selling and Adminstration
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3.00
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Total Variable Cost per Unit
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25.00
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Fixed Cost Per Month
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Fixed Manufacturing Overhead
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315,000.00
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Fixed Selling and Adminstration
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245,000.00
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Total Fixed Cost Per Months
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560,000.00
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The products sells for $60.00 per unit. Production and sales data for July and August. The first two months of operation are:
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Units Produced
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Units Sold
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July
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17,500
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15,000
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August
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17,500
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20,000
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The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:
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July
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August
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Sales
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900,000.00
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900,000.00
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Less cost of goods sold:
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Beginning Inventory
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0
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100,000
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Add cost of goods manufactured
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700,000
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700,000
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Goods Available for sale
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700,000
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800,000
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Less Ending Inventory
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100,000
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0
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Cost of goods sold
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600,000
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800,000
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Gross Margin
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300,000
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400,000
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Less selling and adminstrative expenses
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290,000
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305,000
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Net Operating Income
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10,000
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950,000
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Required:
1. Determine the unit product cost under:
A. Absorption costing
B. Variable costing
2. Prepare variable costing income statements for July and August using the contribution approach
3. Reconcile the variable costing and absorption costing net operating income figure
4. The company’s Accounting Department has determined the company’s break-even point to be 16,000 unit per month. Compute the following
Fixed cost per month, $560,000 = 16,000 units
Unit contribution margin, $35 per unit
I am confused , said the president, The accounting people say that our break even point is 16,000 units per month, but we sold only 15,000 units in July, and the income statement is wrong or the break even point is wrong. “ Prepare a brief memo for the president, explaining what happened on the July income statement.