Problem 7-22 (Static) Variable Costing Income Statements; Income Reconciliation [LO7-1, LO7-2, LO7-3]

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

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 the following absorption costing income statements for July and August:

	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:

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.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Prepare variable costing income statements for July and August.

Denton Company
Variable Costing Income Statement
	July	August
Sales	$ 900,000	$ 1,200,000
Variable expenses: