Galliart Company Has Two Identical Divisions, East and West

question 56

Essay

Galliart Company has two identical divisions, East and West. Their sales, production volume, and fixed manufacturing costs have been the same for the last five years. The amounts for each division were as follows:
East Division uses absorption costing and West Division uses variable costing.
Both use FIFO inventory methods.
Variable manufacturing costs are $5 per unit.
Selling and administrative expenses were identical for each division.
There were no inventories at the beginning of 20X1.
Which division reports the highest income each year? Explain.

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Definitions:

Inflation Rate

The proportionate rise in the cost of goods and services within an economy over a specified timeframe.

Volcker Disinflation

A monetary policy strategy employed by the Federal Reserve under Chairman Paul Volcker in the late 1970s and early 1980s, aimed at reducing the high levels of inflation through high interest rates.

Long-Run Phillips Curve

Represents the relationship between inflation and unemployment when the economy is at its natural rate of unemployment, typically showing no trade-off between inflation and unemployment in the long run.

Short-Run Phillips Curve

An economic model illustrating a temporary inverse relationship between the rate of unemployment and the rate of inflation, providing insights into monetary policy's impact.