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Denton Company manufactures and sells a single product. Cost data for the product are given:
| Variable costs per unit: | |
| Direct materials | $ 3 |
| Direct labor | 11 |
| Variable manufacturing overhead | 4 |
| Variable selling and administrative | 1 |
| Total variable cost per unit | $ 19 |
| Fixed costs per month: | |
| Fixed manufacturing overhead | $ 120,000 |
| Fixed selling and administrative | 160,000 |
| Total fixed cost per month | $ 280,000 |
The product sells for $55 per unit. Production and sales data for July and August, the first two months of operations, follow:
| Units Produced | Units Sold |
| July | 30,000 | 26,000 |
| August | 30,000 | 34,000 |
The companys Accounting Department has prepared the following absorption costing income statements for July and August:
| July | August |
| Sales | $ 1,430,000 | $ 1,870,000 |
| Cost of goods sold | 572,000 | 748,000 |
| Gross margin | 858,000 | 1,122,000 |
| Selling and administrative expenses | 186,000 | 194,000 |
| Net operating income | $ 672,000 | $ 928,000 |
Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare variable costing income statements for July and August.
3. Reconcile the variable costing and absorption costing net operating incomes.
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