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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 $ 4 Direct labor

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 $ 108,000
Fixed selling and administrative 160,000
Total fixed cost per month $ 268,000

The product sells for $46 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 $ 644,000 $ 1,012,000
Cost of goods sold 336,000 528,000
Gross margin 308,000 484,000
Selling and administrative expenses 188,000 204,000
Net operating income $ 120,000 $ 280,000

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.

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