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 (52,400 units) Variable expenses $314,400 Variable cost of goods sold Variable selling and administrative expenses $143,576 58,688 202,264 Contribution margin Fixed expenses 112,136 Fixed manufacturing overhead Fixed selling and administrative expenses 103,360 23,056 126,416 Operating loss $ (14,280) 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 Units sold 64,600 52,400 Variable costs per unit: Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative expenses $ 1.37 $ 0.97 $ 0.40 1.12