(Convert variable to absorption) The April 2006 income statement for Kick’in Sportswear has just been received by Bobby Cox, vice president of marketing. The firm uses a variable costing system for internal reporting purposes.

The following notes were attached to the statements:
• Unit sales price for April averaged $72.
• Unit manufacturing costs for the month were:

• The predetermined unit rate for fixed manufacturing costs was based on normal monthly production of 150,000 units.
• April production was 7,500 units in excess of sales.
• April ending inventory consisted of 12,000 units.

a. The marketing vice president is not familiar with variable costing.
1. Recast the April income statement on an absorption costing basis.
2. Reconcile and explain the difference between the variable costing and the absorption costing income figures.

b. Explain the features of variable costing that should appeal to the mar¬ keting vice president.
(CMA adapted)LO1.

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Sales KICK'IN SPORTSWEAR Income Statement For the Month Ended April 30, 2006 Variable standard cost of goods sold Product contribution margin Fixed expenses Manufacturing (budget and actual) Selling and administrative Income before tax $2,250,000 1,200,000 $7,200,000 (3,600,000) $3,600,000 (3,450,000) $ 150,000