In early August, Terry Silver, the new marketing vice president of Landau Company, was studying the July income statement. Silver found the statement puzzling: July's sales had increased significantly over June's, yet income was lower in July than in June. Silver was certain that margins on Landau's products had not narrowed in July and therefore felt that there must be some mistake in the July statement.
Questions
1. Critique the various pros and cons of the variable costing proposal that were presented in the meeting. What arguments would you add?
2. Should Landau adopt variable costing for its monthly income statements?

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EXHIBIT 1 Effects of Variable Costing Income Statements lune and July July une Full Costing Variable Costing Full Costing Vanable Costing Sales revenues Cost of sales at standard Standard gross margin Production cost variances:. 5865,428 484,640 380,788 $865,428 337,517 527,911 5931,710 521,758 409 952 $931,710 363,367 568,343 Labor Material Overhead volume Overhead spending (16,259) 12,416 1,730 3,604 382,279 11,814) 8,972 (63,779) 2,832 346,163 (16,259) 12.416 (11,814) 8,972 Actual gross margin Fixed production overhead Selling and administrative Incorne before taxes 3,604 527,672 192,883 301,250 5 33,539 2,832 568,333 192,883 310,351 $ 65,109 301.250 $ 81,029 310,351 $ 35,812 Parentheses denote unfoable rdebit varancen Impact on Inventories and Retained Earnings The only asset account affected by the difference in accounting method was inventories; on the liabilities and owners' equity side, only Retained Earnings was affected. There was no tax liability impact since variable costing was not permitted İor in come tax reporting purposes.) As of lune 30 As of July 31 Full Costing $T,680,291 3,112,980 Variable Costing Full Costing Variable Costing $1,103,016 2,650,801 Inventories Retained earnings $1,170,203 2,602,892 $1,583,817 3,131,602