Chamiching Makes Hacksaw Blades In the First Year,variable Costs Accounted for Half of the First

question 9

Multiple Choice

Chamiching makes hacksaw blades.Inventory values are determined using the first in,first out (FIFO) method.Production and sales data for the first three years appear below. $\begin{array}{ccc}\text { Hacksaw blades } & \text { Sold } & \text { Produced } \\\text { Yr } 1 & 18,000 & 22,000 \\\text { Yr } 2 & 25,000 & 23,000 \\\text { Yr } 3 & 37,000 & 35,000\end{array}$
$$\begin{array} { l l c } & \text { Sales price } & \text { Full Cost } \\Yr 1 & \$ 10.00 & \$ 6.00 \\\text { Yr } 2& \$ 11.00 & \$ 6.60 \\Yr 3 & \$ 12.00 & \$ 7.60\end{array}$$
In the first year,variable costs accounted for half of the full costs.Total fixed production costs increased each subsequent year by 20%,as a result of step-fixed costs and a general inflationary price increase.
For Chamiching,when variable costing income is reconciled to absorption costing income,which of the following is true?

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Definitions:

Free Cash Flow

The amount of cash a company generates after accounting for capital expenditures required to maintain or expand its asset base.

Productive Capacity

The maximum output a system can produce over a set period under normal conditions.

PP&E

Property, Plant, and Equipment - A company's tangible fixed assets that are expected to provide economic benefits for more than one year.

Current Production

The total output of goods and services produced by an economic entity in a current period, reflecting its current level of activity.