Explore BrainMass

Explore BrainMass

    Denton Company: Absorption Costing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows:
    Year 1 Year 2
    Sales (@ $63 per unit) $ 1,197,000 $ 1,827,000
    Cost of goods sold (@ $39 per unit) 741,000 1,131,000

    Gross margin 456,000 696,000
    Selling and administrative expenses* 308,000 338,000

    Net operating income $ 148,000 $ 358,000

    * $3 per unit variable; $251,000 fixed each year.

    The company's $39 unit product cost is computed as follows:
    Direct materials $ 7
    Direct labor 11
    Variable manufacturing overhead 2
    Fixed manufacturing overhead ($456,000 ÷ 24,000 units) 19

    Absorption costing unit product cost $ 39

    Production and cost data for the two years are given below:
    Year 1 Year 2
    Units produced 24,000 24,000
    Units sold 19,000 29,000

    Required:
    1. Prepare a variable costing contribution format income statement for each year.
    2. Reconcile the absorption costing and variable costing net operating income figures for each year.

    © BrainMass Inc. brainmass.com June 4, 2020, 3:59 am ad1c9bdddf
    https://brainmass.com/business/accounting/denton-company-absorption-costing-545427

    Solution Summary

    Your tutorial is in excel, attached. Click in cells to see computation. The variable costing financial statements and the reconciliation give you the structure you need to solve similar problems.

    $2.19

    ADVERTISEMENT