I received an early distribution on my 401k. My understanding is that the 10% penalty is assessed first and then they deduct the taxes. Are both of those calculated on the top figure value of the account. Is the 10% penalty tax deductable? Can any part of the penalty be used to satisfy the income tax owed on the distribution?

The 10% is based on the total amount of the distribution. So is the tax liability. The 10% is not deductible.

Agreed.