The vice president, sales of Harvac Corporation has recieved the following income statement for November, which was prepared on a variable costing basis. The firm has just adopted variable costing for its internal reporting.

The controller attached the following notes with the statements:

a. The vice president, sales is not comfortable with the variable costing system and wonders what the net income would have been under the previous absorption costing system.

1. Present the November income statement on an absorption costing basis.

2. Reconcile and explain the difference between the variable costing and absorption costing net income figures.

Income Statement For the Month of November (in thousands) \begin{tabular}{lr} Sales & $3,000 \\ Less variable cost of goods sold & 1,500 \\ \cline { 2 - 2 } Contribution margin & 1,500 \\ Less fixed manufacturing costs at budget & 600 \\ Gross margin & 900 \\ Less fixed selling and administrative costs & 400 \\ \hline Net income before taxes & $500 \\ \hline \hline \end{tabular} 3. The unit rate for fixed manufacturing costs is a predetermined rate based on a mc 4. The variable costs per unit have been stable all year. 5. Production for November was 43,550 units in excess of sales. 6. The inventory at November 30 was 95,200 units. Absorption-Costing Income Statement Sales in units $ Variable-costing net income $ FMOH deferred in ending inventory FMOH released from beginning inventory Absorption-costing net income Income Statement For the Month of November (in thousands) \begin{tabular}{lr} Sales & $3,000 \\ Less variable cost of goods sold & 1,500 \\ \cline { 2 - 2 } Contribution margin & 1,500 \\ Less fixed manufacturing costs at budget & 600 \\ Gross margin & 900 \\ Less fixed selling and administrative costs & 400 \\ \hline Net income before taxes & $500 \\ \hline \hline \end{tabular} 3. The unit rate for fixed manufacturing costs is a predetermined rate based on a mc 4. The variable costs per unit have been stable all year. 5. Production for November was 43,550 units in excess of sales. 6. The inventory at November 30 was 95,200 units. Absorption-Costing Income Statement Sales in units $ Variable-costing net income $ FMOH deferred in ending inventory FMOH released from beginning inventory Absorption-costing net income