The Webster Corporation produces a single product at a cost of \(\$ 5\) each, all of which is paid in cash when the unit is produced. The selling cost consists of a sales commission of \(\$ 3\) a unit and is paid in cash at the time of shipment. The selling price is \(\$ 10

\mathrm{a}\) unit; all sales are made on account. No uncollectible accounts are expected, and no costs are incurred at the time of collection.

During 1979, the firm produced 200,000 units, shipped 150,000 units, and collected \$1 million from customers. During 1980, the firm produced 125,000 units, shipped 160.000 units, and collected \(\$ 2\) million from customers.

Determine the amount of net income for 1979 and 1980:

a If revenue and expense are recognized at the time of production.

b If revenue and expense are recognized at the time of shipment.

c If revenue and expense are recognized at the time of cash collection.
d A firm experiencing growth in its sales volume will often produce more units during a particular period than it sells. In this way, inventories can be built up in anticipation of an even larger sales volume during the next period. Under these circumstances, will recognition of revenue and expense at the time of production, shipment, or cash collection generally result in the largest reported net income for the period? Explain.
e A firm experiencing decreases in its sales volume will often produce fewer units during a period than it sells in an effort to reduce the amount of inventory on hand for next period. Under these circumstances, will recognition of revenue and expense at the time of production, shipment, or cash collection generally result in the largest reported net income for a period? Explain.