The Semi-Fixed Company. The Semi-Fixed Company began operations in 2006 and differs from the All-Fixed Company (described in Problem 9-3 3) in only one respect: it has both variable and fixed manufacturing costs. Its variable manufacturing costs are $8.40 per tonne, and its fixed manufacturing costs are $140,000 per year. The denominator level is 20,000 tonnes per year.

Required 1. Using the same data as in Problem 9-33

-except for the change in manufacturing cost behaviour, prepare income statements with adjacent columns for 2006, 2007, and the two years together, under

(a) variable costing and

(b) absorption costing.

2. Explain the differences in operating income for Semi-Fixed Company and All-Fixed Company.

3. What inventory costs would be carried on the balance sheets at December 31, 2006, and 2007, under each method?

4. Assume that the performance ofthe top manager ofthe company is evaluated and rewarded largely based on reported operating income. Which costing method would the manager prefer? Why?