Problem 6-22 (Algo) Variable Costing Income Statements; Income Reconciliation [LO6-1, LO6-2, LO6-3]

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

Variable costs per unit:
Direct materials			$	3
Direct labor				12
Variable manufacturing overhead				3
Variable selling and administrative				3
Total variable cost per unit			$	21
Fixed costs per month:
Fixed manufacturing overhead	$	45,000
Fixed selling and administrative		163,000
Total fixed cost per month	$	208,000

The product sells for $48 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	15,000	11,000
August	15,000	19,000

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

	July			August
Sales	$	528,000		$	912,000
Cost of goods sold		231,000			399,000
Gross margin		297,000			513,000
Selling and administrative expenses		196,000			220,000
Net operating income	$	101,000		$	293,000

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.