Denton Company manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:
Direct materials	$ 4
Direct labor	10
Variable manufacturing overhead	4
Variable selling and administrative	2
Total variable cost per unit	$ 20
Fixed costs per month:
Fixed manufacturing overhead	$ 90,000
Fixed selling and administrative	175,000
Total fixed cost per month	$ 265,000

The product sells for $49 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	18,000	14,000
August	18,000	22,000

The companys Accounting Department has prepared the following absorption costing income statements for July and August:

	July	August
Sales	$ 686,000	$ 1,078,000
Cost of goods sold	322,000	506,000
Gross margin	364,000	572,000
Selling and administrative expenses	203,000	219,000
Net operating income	$ 161,000	$ 353,000

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.

Determine the unit product cost under: (a) Absorption costing, (b) Variable costing.

1

	Unit Product Cost
a. Absorption costing
b. Variable costing

2

Prepare variable costing income statements for July and August.

Denton Company
Variable Costing Income Statement
	July	August
Net operating income (loss)

3

Reconcile the variable costing and absorption costing net operating incomes. (Enter any losses or deductions as a negative value.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	July	August
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing
Absorption costing net operating income (loss)