Exercise #2: Townsley Records Townley Records produces music CDs. The company plans to produce and sell 12,000 CDs each quarter and have an inventory of 2,000 CDs at the start of Q1. The selling price of each CD is $6 and the variable cost is $1. The production and non-production overheads are estimated at $24,000 and $30,000 a quarter, respectively. The results for the year, expressed in the number of CDs, are as follows: Q1 Q2 Q3 Q4 Total Sales 9,000 16,000 6,000 13,000 44,000 Production 14,000 12,000 11,000 10,000 47,000 Calculate the Q1 profits (a) using absorption costing, and (b) using variable costing. (c) Explain why the profits differ. (Assume the total of actual overhead incurred was as forecast) [NOTE: You may find this a difficult problem. I want you to use logic and the class material to figure out how you might approach the problem and make a stab at the solution. We'll work through in the next class.)