M5: Watson Activity Watson, Inc. is a manufacturing firm. Its owner, Tom Watson, was worried about the firm's third quarter results because demand for its product has been decreasing. However, he was pleasantly surprised to see that profit had actually increased in the third quarter. Still, he has a nagging feeling that he's missing something important. Watson, Inc. Income Statements 2017 92 10,000 Q3 Sales volume Sales revenue Cost of goods sold Gross margin Selling and administrative expenses Net operating income Q4 8,000 10,000 $520,000 $416,000 $520,000 350,000 240,000 590,000 70,000 176,000 (70,000) 98,000 110,000 $60,000 $78,000 180,000) 110,000 Production Levels Q4 1,000 92 Q3 Actual production (units) Cost information Variable manufacturing cost Variable selling and administrative cost Fixed manufacturing overhead Fixed selling and administrative cost Other Information 15,000 12,000 $10.00 per unit $6.00 per unit $300,000 per atr $50,000 per aut .The company's selling price and cost structure have been stable for the last year .The company applies overhead based on actual production .The company uses LIFO for inventory costing Beginning Inventory at the start of Q2-0 Units / $0 .The company introduced Lean Production at the beginning of the fourth quarter, resulting in zero ending inventory. The results for Q4 using absorption costing are shown above