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

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

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

Required:

1. Determine the unit product cost under:

a. Absorption costing.

b. Variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating incomes.

$ 5 2 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $ 21 $ 84,000 160,000 $ 244,000 Units Produced 21,000 21,000 Units Sold 17,000 25,000 July August Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July $ 833,000 391,000 442,000 194,000 $ 248,000 August $1,225,000 575,000 650,000 210,000 $ 440,000 Unit Product Cost a. Absorption costing b. Variable costing Required 1 Required 2 Required 3 Prepare contribution format variable costing income statements for July and August. Denton Company Variable Costing Income Statement July August Net operating income (loss) 0 $ 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)