Chapter 8 Homework Problem Luciani Company developed a new electronic device, obtained a patent for it and now produces and sells the device. During the first month of operations, the device was very well received on the marke so Michael Luciani, owner of the company, looked forward to a healthy profit. For this reason, he was surprised to see a loss for the month on his income statement. This statement was prepared by his accounting service, which takes great pride in providing its clients with timely financial data. The statement follows: t, Luciani Company Income Statement Sales (40,000 units) $200,000 Variable expenses: Variable COGS $80,000 30,000 Variable S& A expenses (110,000) 90,000 Contribution margin Fixed expenses: Fixed manufacturing overhead 75,000 20,000 Fixed S & A expenses Net operating loss Mr. Luciani is discouraged over the (95,000) $(5,000) loss shown for the month, particularly because he had planned to use the statement to encourage investors to purchase stock in the new company. A friend, wh 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 Variable costs per unit: Direct materials Direct labor Variable Variable S & A expenses 50,000 40,000 $1.00 $0.80 $0.20 $0.75