The Folger manufacturers and sells a single product. Cost date for the product is as follows:

Item	Costs
Variable cost per unit
Direct materials	$ 6
Direct labor	12
Variable factory overhead	4
Variable selling & administrative	3
Total Variable cost per unit	$ 25
Fixed cost per month
Fixed manufacturing overhead	$240,000
Fixed selling and administrative	180,000
Total Fixed cost per month	$420,000

The product sells for $40 per unit. Production and sales data for May and June are as follows:

Month	Units Produced	Units Sold
May	30,000	26,000
June	30,000	34,000

Income statements for the months of May and June prepared by the accounting department using absorption are as follows:

Item	May	June
Sales	$1,040,000	$1,360,000
Cost of goods sold	780,000	1,020,000
Gross margin	$ 260,000	$ 340,000
Selling & administrative expenses	258,000	282,000
Net Operating Income	$ 2,000	$ 58,000

Required:

1. Determine the unit product cost under: (a) Absorption Costing

(b) Variable costing.

2. Prepare contribution format variable costing income statements for May and June.

3. Reconcile the variable costing and absorption net operating incomes.

4. The Companys Accounting Department has determined the break-even point to be 28,000 units as follows:

Fixed cost per month = $420,000 = 28,000 units

Unit contribution margin $15 per unit

After receiving this 28,000 unit break-even number, Folgers President stated:something is wrong somewhere, Our Chief Accountant says that our break-even point is 28,000 units. However, in May we sold only 26,000 units and the May income statement indicates we made a profit of $2000. Which figure do we believe?

Prepare a brief explanation of what happened on the May income statement.