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Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials $7 Direct labor

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

Variable costs per unit:

Direct materials

$7

Direct labor

10

Variable manufacturing overhead

5

Variable selling and administrative

3

Total variable cost per unit

$25

Fixed costs per month:

Fixed manufacturing overhead

$

315,000

Fixed selling and administrative

245,000

Total 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 Produced

Units Sold

July

17,500

15,000

August

17,500

20,000

The companys Accounting Department has prepared absorption costing income statements for July and August as presented below:

July

August

Sales

$

900,000

$

1,200,000

Cost of goods sold

600,000

800,000

Gross margin

300,000

400,000

Selling and administrative expenses

290,000

305,000

Net operating income

$

10,000

$

95,000

Required:

1.

Determine the unit product cost under absorption costing and variable costing.

2.

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

3.

Reconcile the variable costing and absorption costing net operating income figures.

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