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The vice president of sales at Wildlife Corporation has received the income statement for January 2009. This statement, which was prepared on the basis of

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The vice president of sales at Wildlife Corporation has received the income statement for January 2009. This statement, which was prepared on the basis of variable costing, is reproduced below. The firm has just adopted a variable costing system for internal reporting. Wildlife Corporation Income Statement For the Month of January 2009 $2,400,000 1,200,000 $1,200,000 Sales revenues Variable cost of goods sold Contribution margin Fixed costs Manufacturing Selling and administrative Operating income S600,000 400,000 1,000,000 $ 200,000 The controller attached the following notes to the statements. Unit sales price for January averaged $24 Unit manufacturing costs for the month were: Variable costs Fixed costs Total costs The unit rate for fixed manufacturing costs is based on monthly production of 150,000 units. Production for January was 50,000 units above sales. Inventory on January 30 was 50,000 units. The vice president for sales is uncomfortable with using variable costing and wonders what operating income would have been using absorption costing. Therefore, you have been asked to do the following: a. b. Prepare the January income statement using absorption costing. Reconcile and explain the difference between income figures when variable costing and absorption costing are used. 2. Provide the vice president of sales with sound reasons for using variable costing for income measurement

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