Question
Mustang Products has just perfected a product which it can sell for $20 per unit. Mustang's economist forecasts that demand for this unique product will
Mustang Products has just perfected a product which it can sell for $20 per unit. Mustang's economist forecasts that demand for this unique product will be 8 in 20X1 and 11 in 20X2. Production costs are estimated as follows:
20X1 | 20x2 | |
Fixed (in total) | $ 10 | $ 10 |
Variable (per unit) | 5 | 7 |
Because Mustang's production facilities can accommodate only a single worker per shift, only 10 jerseys are turned out annually. Mustang uses the FIFO inventory method.
(1). Using absorption costing. Mustang's net income for 20X1 would be ?
(2). Using absorption costing. Mustang's net income for 20X2 would be ?
(3). Using absorption costing. Mustang's ending inventory for 20X2 would be ?
(4). Using variable costing. Mustang's net income for 20X1 would be ?
(5). Using variable costing. Mustang's net income for 20X2 would be ?
(6) Using variable costing. Mustang's ending inventory for 20X2 would be ?
Which method, absorption costing (AC) or variable costing (VC) would provide the Higher net income under each of the following circumstances:
(7). Sales are equal to production ____________
(8). Sales are greater than production _____________
(9). Production is greater than sales_______________
(10). Which method, absorption costing (AC) or variable costing (VC) would always prodvide the Higher Inventory amount? why?
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