7. Sandi Scott obtained a patent on a small electronic device and organized Scot Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Scott looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows: Scolt Products, Inc Income Statement Sales (23,000 units) Variable expenses $ 834.900 Variable cost of goods sold Variable selling and administrative expenses 276,000 182,850 458,850 Contribution margin Fixed expenses 376,050 Fixed manufacturing overhead Fixed selling and administrative expenses 213,200 220,000 433,200 Net operating loss (57,150) Ms. Scott is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company.A friend, who is a CPA, 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 pront for the month. Selected cost data relating to the product and to the first month of operations follow Units produced Units sold Variable costs per unit 26,000 23,000 Direct materials Direct labor Variable manufacturing overhead 7.20 s 280 $ 2.00