The Vice President for Sales of Huber Corporation has received the Income Statement for July Year 1. The statement has been prepared on the variable (direct) cost basis and is reproduced below. The firm has just adopted a variable (direct) costing system for internal reporting purposes. Huber Corporation Income Statement For the Month of July Year 1 ($000 omitted) Sales $2,400 Less: Variable standard cost of goods sold 1,200 Contribution margin $1,200 Less: Fixed manufacturing costs at budget $600 Less: Fixed manufacturing cost spending variance 0 600 Less: Fixed selling & administrative costs 400 Income before taxes $ 200 The controller attached the following notes to the statements. The unit sales price for July averaged $24. The standard unit manufacturing costs for the month were Variable cost $12 Fixed cost 4 Total cost $16 The unit rate for fixed manufacturing costs is a predetermined rate based upon a normal monthly production of 150,000 units. Production for July was 45,000 units in excess of sales. The inventory at July 31 consisted of 80,000 units. The Vice President for Sales is not comfortable with the variable (direct) cost basis and wonders what operating income would have been under the prior absorption cost basis. Present the July income statement on an absorption cost basis.

Reconcile and explain the difference between the variable (direct) costing and the absorption costing operating income figures.

Explain the features associated with variable (direct) cost income measurement that should be attractive to the Vice President for Sales.