Hawthorne Golf, the maker of a sought-after set of golf clubs, was formed in 2006. The selling price for each golf club set is \(\$ 750\), variable production costs are \(\$ 350\) per unit, fixed production costs are \(\$ 750,000\) per year, and fixed selling and administrative costs are \(\$ 850,000\) per year. Data below indicate net income for 2006-2008 under full costing.

In 2006 and 2007, Milo Hawthorne, Jr., was the president of Hawthorne Golf. The board of directors was generally pleased with the company's performance under his leadership-the company hit the break-even point in its first year of operation and had a modest profit in 2007. Milo quit at the end of 2007 and went on to buy a golf course and open a pro shop. His replacement Daryl Selmer, was apparently not as successful as Milo. Daryl argued that he was improving the company by getting rid of excess inventory, but the board noted that the company showed a \(\$ 68,750\) loss in the first year of his leadership.

Required

a. Recalculate net income for all three years using variable costing.

b. Based on the limited information available, comment on the relative job performance of Milo and Daryl.

c. Note that under full costing, the company is showing a substantial loss in 2008.

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Production (units) Sales (units) Production cost per unit (full cost) Sales Less cost of goods sold Gross margin Less selling and administrative expenses Net income (loss) 2006 2007 2008 6,000 4,000 2,500 3,500 4,000 5,000 $475.00 $537.50 $650.00 $2,625,000 $3,000,000 $3,750,000 1,662,500 1,993,750 962,500 1,006,250 850,000 850,000 $ 112,500 $ 156,250 2,968,750 781,250 850,000 $ (68,750)