D - If this company was only able to sell 2,000 units in Year 2 but 6,000 units in Year 3 such that they would need to over produce and inventory 2,000 units from Year 2 production for sales in Year3. How would this impact the decision to accept the contract?

Income Statement (Variable Costing) For Years ending December 31 Year 2 4,000 3,000 Units Produced Units Sold Year 3 4,000 5,000 Year 4 6,000 6,000 1,368,000.00 2,280,000.00 2,736,000.00 561,000.00 935,000.00 1,122,000.00 33,000.00 55,000.00 66,000.00 594,000.00 990,000.00 1,118,000.00 Sales revenue Variable production costs Variable S&A expenses Total Variable expenses Contribution Margin Fixed Overhead Fixed S&A expenses Total Fixed expenses Net Operating Income 774,000.00 1,290,000.00 1,548,000.00 186,000.00 186,000.00 186,000.00 474,000.00 474,000.00 474,000.00 660,000.00 660,000.00 660,000.00 114,000.00 630,000.00 888,000.00 0 Variable Product Cost of 1,000 units of Inventory (unsold) 187,000.00 Income Statement (Absorption Costing) For Years ending December 31 Year 2 Year 3 4,000 4,000 3,000 5,000 Units Produced Units Sold Year 4 6,000 6,000 1,368,000.00 2,280,000.00 2,736,000.000 561,000.00 935,000.00 1,122,000.00 186,000.00 186,000.00 186,000.00 747,000.00 1,121,000.00 1,308,000.00 Sales revenue COGS: Variable Product Costs for units sold Fixed Product Costs allocated to units sold Total Cost of Goods Sold Gross Margin Variable Selling & Admin Expenses Fixed Selling & Admin Expenses Total Selling & Admin Expenses Net Operating Income 621,000.00 1,159,000.00 1,428,000.00 33,000.00 55,000.00 66,000.00 474,000.00 474,000.00 474,000.00 507,000.00 529,000.00 540,000.00 114,000.00 630,000.00 888,000.00 0 0 Absorption Product Cost for of 1,000 units of Inventory (unsold) 233,500.00 Income Statement (Variable Costing) For Years ending December 31 Year 2 4,000 3,000 Units Produced Units Sold Year 3 4,000 5,000 Year 4 6,000 6,000 1,368,000.00 2,280,000.00 2,736,000.00 561,000.00 935,000.00 1,122,000.00 33,000.00 55,000.00 66,000.00 594,000.00 990,000.00 1,118,000.00 Sales revenue Variable production costs Variable S&A expenses Total Variable expenses Contribution Margin Fixed Overhead Fixed S&A expenses Total Fixed expenses Net Operating Income 774,000.00 1,290,000.00 1,548,000.00 186,000.00 186,000.00 186,000.00 474,000.00 474,000.00 474,000.00 660,000.00 660,000.00 660,000.00 114,000.00 630,000.00 888,000.00 0 Variable Product Cost of 1,000 units of Inventory (unsold) 187,000.00 Income Statement (Absorption Costing) For Years ending December 31 Year 2 Year 3 4,000 4,000 3,000 5,000 Units Produced Units Sold Year 4 6,000 6,000 1,368,000.00 2,280,000.00 2,736,000.000 561,000.00 935,000.00 1,122,000.00 186,000.00 186,000.00 186,000.00 747,000.00 1,121,000.00 1,308,000.00 Sales revenue COGS: Variable Product Costs for units sold Fixed Product Costs allocated to units sold Total Cost of Goods Sold Gross Margin Variable Selling & Admin Expenses Fixed Selling & Admin Expenses Total Selling & Admin Expenses Net Operating Income 621,000.00 1,159,000.00 1,428,000.00 33,000.00 55,000.00 66,000.00 474,000.00 474,000.00 474,000.00 507,000.00 529,000.00 540,000.00 114,000.00 630,000.00 888,000.00 0 0 Absorption Product Cost for of 1,000 units of Inventory (unsold) 233,500.00