Question 5 Jane is considering whether the performance of the division manager of fancy fridges should be assessed using absorption or variable costing. The fancy fridges division manufactures a single product; the standard costs per unit are variable manufacturing $300 and fixed manufacturing $150. Selling and administrative costs are $25 per unit sold and the selling price is $500 per fancy fridge unit. For this division, the actual and budgeted overhead are the same for the year. For the year, the fancy fridges division sold 750 units and produced 800 units; the division began the year with 50 units in stock. Required: a) What is the value of closing inventory of finished goods under absorption costing? (Chapter 7, 10 marks) b) What is the difference in profit between absorption and variable costing and, for this specific year for this company, which of the two stock-costing methods has the higher profit and why? (Chapter 7, 10 marks) c) If adopting absorption costing for assessing the performance of the division manager, explain whether Jane should be concerned about the risk of stock build-up in the division of fancy fridges and its consequences, and how this risk could be mitigated. (Chapter 7, 10 marks)