3) 7 Sees sells bottled water for $5 per bottle. The firm had no beginning inventory at the start of the month, budgeted production of 1,000 bottles, and production capacity of 1,500 bottles. Actual production and sales were 900 bottles and 700 bottles, respectively. During the month, variable manufacturing costs are $2 per bottle produced. Variable marketing costs $0.40 per bottle sold. Fixed manufacturing costs $900. Fixed marketing costs are $500. Fixed administrative costs are $500.

a) What is cost of goods sold during the month if the company uses VARIABLE costing?

b) What is the value of inventory at the end of the month if the company uses VARIABLE costing?

c) What is the value of inventory at the end of the month if the company uses ABSORPTION costing?

d) What are profits during the month if the company uses ABSORPTION costing?

e) Are profits higher under variable or absorption costing? (justify your answer)

CHOOSE ONE: VARIABLE ABSORPTION SAME FOR BOTH

f) Assuming sales remain at 700 bottles, what is the maximum profit the company can earn during the month if it uses ABSORPTION costing?