Evaluate Full- Absorption and Variable Costing: The vice president for sales of Huber Corporation received the following income statement for November. The statement has been prepared using variable costing, which the firm has just adopted for internal reporting purposes.

The controller attached the following notes to the statements.

1. The unit sales price for November averaged $24.

2. The unit manufacturing costs for the month were:

The unit rate for fixed manufacturing costs is a predetermined rate based upon a normal monthly production of 150,000 units.

3. Production for November was 45,000 units in excess of sales.

4. The inventory at November 30 consisted of 80,000 units.

Required:

a. The vice president for sales is not comfortable with the variable cost basis and wonders what the operating profit would have been under the full-absorption cost basis.

(1) Present the November income statement on a full-absorption cost basis.

(2) Reconcile and explain the difference between the variable costing and the full-absorption costing operating profit figures.

b. Explain the features associated with variable cost profit measurement that should be attractive to the vice president for sales.

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HUBER CORPORATION Income Statement For the Month of November (in thousands) Sales revenue Less variable cost of goods sold Contribution margin Less fixed manufacturing costs at budget Gross margin Less fixed nonmanufacturing costs Operating profits before taxes $2,400 1,200 1,200 600 600 400 $ 200