Variable costs per unit: Direct materials $ 4 Direct labor 11 Variable manufacturing overhead 3 Variable selling and administrative 1 Total variable cost per unit $ 19 Fixed costs per month: Fixed manufacturing overhead $ 60,000 Fixed selling and administrative 166,000 Total fixed cost per month $ 226,000 The product sells for $52 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 $ 572,000 $ 988,000 Cost of goods sold 242,000 418,000 Gross margin 330,000 570,000 Selling and administrative expenses 177,000 185,000 Net operating income $ 153,000 $ 385,000

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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