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Denton Company: unit cost under absorption and variable costing; reconcile operating income

Denton Company Manufactures and sells single products. Cost data for the product are given below

Variable Cost Per Unit:

Direct Material $7.00
Direct Labor 10.00
Variable Manufactured Overhead 5.00
Variable Selling and Administration 3.00

Total Variable Cost per Unit 25.00

Fixed Cost Per Month

Fixed Manufacturing Overhead 315,000.00
Fixed Selling and Administration 245,000.00

Total Fixed Cost Per Months 560,000.00

The products sells for $60.00 per unit. Production and sales data for July and August. The first two months of operation are:

Units Produced Units Sold
July 17,500 15,000
August 17,500 20,000

The company's Accounting Department has prepared absorption costing income statements for July and August as presented below:

(see attached file)


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

(see attached file)

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.

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