Given information:

Umbrella price is $12.50 each

In 2014 Company sold 60,000 umbrellas.

Fixed Manufacturing Costs $216,000

Fixed Cost for Administration $79,525

Direct Materials $3.00

Direct Labor $1.50

Variable Manufacturing Overhead $0.40

Variable Selling Expenses $1.1

Section II : Inventory Management

Beginning Inventory: 0 Umbrellas

Production: 80,000 Umbrellas

Sales: 60,000 Umbrellas

Ending Inventory: 20,000 Umbrellas

Requirement 1
Hampshire Company
Variable Costing Income Statement
	Units	$
Sales	60,000	$12.50		$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory		0	$0
Direct Materials	80,000	$3.00	$240,000.00
Direct Labor	80,000	$1.50	$120,000.00
Manufacturing Overhead	80,000	$0.40	$32,000.00
Total Variable Costs			$392,000.00
Cost of Good Available for Sale			$392,000.00
Deduct Ending Inventory	20,000	$4.90	$98,000.00
Variable Costs of Goods Sold				$294,000.00
Variable Selling Costs	60,000	$1.10	$66,000.00	$66,000.00
Contribution Margin				$390,000.00
Fixed Costs:
Fixed Manufacturing Costs				$216,000
Fixed Administrative Costs				$79,525
Operating Income				$94,475.00

Requirement 2
Hampshire Company
Absorption Costing Income Statement
	Units	$
Sales	60,000	$12.50		$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory			$0
Direct Materials	80,000	$3.00	$240,000.00
Direct Labor	80,000	$1.50	$120,000.00
Manufacturing Overhead	80,000	$0.40	$32,000.00
Total Variable Costs			$392,000.00
Allocated Fixed Manufacturing Costs	80,000	$2.70	$216,000.00
Cost of Good Available for Sale			$608,000.00
Deduct Ending Inventory	20,000	$7.60	$152,000.00
Costs of Goods Sold				$456,000.00
Gross Margin				$294,000.00
Fixed Costs:
Variable Selling Costs	60,000	$1.10		$66,000
Fixed Administrative Costs				$79,525
Operating Income				$148,475.00

A. Determine an optimal cost allocation method based on relevant costs?

B. Describe how this method should be used by decision makers to fulfill their responsibilities? Support your response with examples.

C. What are the pros and cons of implementing the just in time (JIT) inventory system? Do the pros outweigh the cons for this company?

D. Explain how the just in time (JIT) inventory system can benefit this organization? Defend your response.

E. Identify the inventory management method you recommend, and explain why this method will benefit the company?