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:

${?}^{**}$ 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 shares 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:

During the second month of operations, the company again produced $56,700$ units but sold $70,400$ units. $($Assume no change in

total fixed costs.$)$

a$.$ Prepare a contribution format income statement for the month using variable costing.

Answer is complete and correct.

b$.$ Prepare an income statement for the month using absorption costing. $($Do not leave any empty spaces; input a $0$ wherever it is

required.$)$

Answer is complete but not entirely correct.