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Problem 7-22 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

Problem 7-22 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 $ 5
Direct labor 10
Variable manufacturing overhead 2
Variable selling and administrative 2
Total variable cost per unit $ 19
Fixed costs per month:
Fixed manufacturing overhead $ 120,000
Fixed selling and administrative 172,000
Total fixed cost per month $ 292,000

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 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 $ 960,000 $ 1,344,000
Cost of goods sold 440,000 616,000
Gross margin 520,000 728,000
Selling and administrative expenses 212,000 228,000
Net operating income $ 308,000 $ 500,000

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.

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