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	$ 6
Direct labor	11
Variable manufacturing overhead	3
Variable selling and administrative	3
Total variable cost per unit	$ 23
Fixed costs per month:
Fixed manufacturing overhead	$ 72,000
Fixed selling and administrative	169,000
Total fixed cost per month	$ 241,000

The product sells for $50 per unit. Production and sales data for July and August, the first two months of operations, follow:

	Units Produced	Units Sold
July	24,000	20,000
August	24,000	28,000

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

	July	August
Sales	$ 1,000,000	$ 1,400,000
Cost of goods sold	460,000	644,000
Gross margin	540,000	756,000
Selling and administrative expenses	229,000	253,000
Net operating income	$ 311,000	$ 503,000

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.