Leander Office Products Inc. produces and sells small storage and organizational products for office use. During the first month of operations, the products sold well. Andrea Leander, the owner of the company, was surprised to see a loss for the month on her income statement. This statement was prepared by a local bookkeeping service recommended to her by her bank manager. The statement follows:

LEANDER OFFICE PRODUCTS INC.
Income Statement
Sales (53,400 units)				$	336,420
Variable expenses:
Variable cost of goods sold*	$	145,248
Variable selling and administrative expenses		65,682			210,930
Contribution margin					125,490
Fixed expenses:
Fixed manufacturing overhead		119,306
Fixed selling and administrative expenses		19,224			138,530
Operating loss				$	(13,040	)

*Consists of direct materials, direct labour, and variable manufacturing overhead.

Leander is discouraged over the loss shown for the month, particularly since she had planned to use the statement to encourage investors to purchase stock in the new company. A friend who is an accountant insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month.

Selected cost data relating to the product and to the first month of operations follow:

Units produced		63,800
Units sold		53,400
Variable costs per unit:
Direct materials	$	1.44
Direct labour	$	1.05
Variable manufacturing overhead	$	0.23
Variable selling and administrative expenses	$	1.23

During the second month of operations, the company again produced 63,800 units but sold 74,200 units. (Assume no change in total fixed costs.)

b. Prepare an income statement for the month using absorption costing. (Do not leave any empty spaces; input a 0 wherever it is required.) $ 467,460 Sales Cost of goods sold: Beginning inventory 340,578 340,578 Add: Cost of goods manufactured Goods available for sale Less: Ending inventory Gross margin Selling and administrative expenses Operaing income 340,578 126,882 110,490 16,392 $ c. Reconcile the variable costing and absorption costing operating income figures. $ (39,540) Variable costing operating income (loss) Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income (loss) $ (39,540)