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

question 6

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,which of the following is true?

• A)The company should always choose absorption costing as it shows increasing profits every year
• B)The company should always choose absorption costing because it facilitates income smoothing
• C)Over the three years,Chamiching accumulates the same total income regardless of the choice of inventory costing method
• D)b)and c)only
• E)a,b and c

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Definitions:

Cognitive Development

The process of growth and change in intellectual/mental abilities such as thinking, reasoning, and understanding over the course of a person's life.

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A psychologist who criticized the male-centric views in moral development theory, emphasizing a care-based ethics contrasting with justice-based ethics.

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