Chamiching makes hacksaw blades. Inventory values are determined using the first in, first out (FIFO) method. Production and sales data for the first three years appear below.

Hacksaw blades Sold Produced

Yr 1 18,000 22,000

Yr 2 25,000 23,000

Yr 3 37,000 35,000

Sales price Full cost

Yr 1 $ 10.00 $ 6.00

Yr 2 $ 11.00 $ 6.60

Yr 3 $ 12.00 $ 7.60

In the first year, variable costs accounted for half of the full costs. Total fixed production costs increased each subsequent year by 20%, as a result of step-fixed costs and a general inflationary price increase.

For Chamiching, which of the following is true?

[A]Variable costing income (VCI) exceeds full costing income (FCI) every year

[B]VCI exceeds FCI in Yrs 1 and 2 only

[C]VCI exceeds FCI in Yrs 2 and 3 only

[D]VCI never exceeds FCI

[E]None of the choices are correct

[5] For Chamiching, if variable costing is used, which of the following is true?

[A]Yr 3's gross profit is $177,273

[B]Yr 1's gross profit is $48,000

[C]Yr 2's gross profit is $123,200

[D]Yr 2's gross profit is $129,513

[E]Beginning inventory for Yr 3 is $6,313

[6] For Chamiching, if absorption costing is used, which of the following is true?

[A]Yr 1's ending inventory is $12,000

[B]Yr 2's cost of goods sold is $112,400

[C]Yr 3's cost of goods sold is $123,200

[D]Yr 3's goods available for sale is $175,800

[E]None of the choices are correct

[7] For Chamiching, when variable costing income is reconciled to absorption costing income, which of the following is true?

[A]In Yr 1, $12,000 is added to variable costing income to find absorption costing income

[B]In Yr 3, $6,887 is added to variable costing income to find absorption costing income

[C]In Yr 3, $5,113 is deducted from variable costing income to find absorption costing income

[D]In Yr 2, $5,113 is added to variable costing income to find absorption costing income

[E]In Yr 3, $6,887 is deducted from variable costing income to find absorption costing income

[8] For Chamiching, which of the following is true?

A. The company should always choose absorption costing as it shows increasing profits every year

B. The company should always choose absorption costing because it facilitates income smoothing

C. Over the three years, Chamiching accumulates the same total income regardless of the choice of inventory costing method

D. b) and c) only

E. a, b and c