variable versus full eosting, including balanee sheet effeets Ralph's Firm manufactures and sells a single product. For eonvenience, only two assets are present, cash and finished goods inventory. All transactions are for cash, no dividends are paid, no interest is earned on the cash balance, and so on.

Ralph uses normal, full costing eoupled with FIFO. The beginning balance sheet shows cash 140,000 finished goods inventory 60,000 as weIl as a total equity of 200,000. The beginning inventory eonsists of 500 units, "valued" at 89 per unit in variable eost and 31 perunit in allocated fixed manufaeturing overhead. Ralph also provides the following LLAs:
direet material DM$ = 16q,..;
direet labor DL$ = 48q,..;
manufaeturing overhead OV = 90,000 + .5DL$; and selling and administrative S&A = 50,000 + 2q..
q. denotes units sold and q,.. units manufaetured. The selling priee is 200 per unit.
The following three years witnessed the events listed below; assume direet material and direct labor eosts are exaetly as predicted by the respeetive LLAs.
production (q.J sales (q.)
ending inventory (units)
eost (000)
direet labor pius direct material overhead selling and administrative revenue (000)
cash flow (000)
vear #1 vear #2 vear #3 3,500 3,000 2,500 3,000 3,000 3,000 1,000 1,000 500 224 184 56 600 136 192 162 56 600 190 160 140 56 600 244 A normal volume of q,.. = 3,000 units is used for eosting purposes during the entire 3-year history.
a] Prepare full eost ineome statements for eaeh of the 3 years.
b] Prepare end-of-year (full eost, FIFO) balanee sheets for eaeh of the 3 years.
(Use three accounts for this purpose: cash, finished goods inventory, and total equity.)
e] Repeat parts [a] and [b] above for variable eostingo d] Reconeile the year-by-year differenees between full and variable eost ineome and asset measures.AppendixLO1