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

Variable costs per unit:Direct materials$7Direct labor10Variable manufacturing overhead5Variable selling and administrative3Total variable cost per unit$25Fixed costs per month:Fixed manufacturing overhead$315,000Fixed selling and administrative245,000Total fixed cost per month$560,000

The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow:

Units

ProducedUnits

SoldJuly17,50015,000August17,50020,000

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

JulyAugustSales$900,000$1,200,000Cost of goods sold600,000800,000Gross margin300,000400,000Selling and administrative expenses290,000305,000Net operating income$10,000$95,000

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.