Winston Products manufactures and sells a single product. Cost data for the product are given:

Variable costs per unit:

Direct materials

Variable manufacturing overhead

$7

Direct labor

10

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 September and October, the first two months of operations, follow:

Units Produced

Units Sold

September 17,500

15,000

October 17,500

20,000

The company's Accounting Department has prepared the followingabsorption costing income statements for September and October:

	September October
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:

Determine the unit product cost under: a. Absorption costing.

b. Variable costing.

Prepare a Variable Costing income statement for September and

October.

Reconcile the Variable costing and Absorption costing net

operating incomes for both months.

The company's Accounting Department has determined the

company's break-even point to be 16,000 units per month, computed as follows: Fixed cost per month Unit contribution margin

= $560,000 $35 per unit=16,000 units

"I'm confused," said the president. "The accounting people say that ourbreak-even point is 16,000 units per month, but we sold only 15,000 units in September, and the income statement they prepared shows a $10,000 profit for that month. Either the income statement is wrong, or the break-even point is wrong." Prepare a brief memo for the president,explaining what happened on the September absorption costing income statement.