Galliart Company Has Two Identical Divisions,East and West East Division Uses Absorption Costing and West Division Uses Variable

question 90

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:
$$\begin{array}{l}\begin{array} { r r r r r } &\underline { 20 \times 1 } & \underline { 20 \times 2 } & \underline { 20 \times 3 } & \underline { 20 \times 4 } & \underline { 20 \times 5 } \\\text {Units produced }&50,000 & 55,000 & 55,000 & 44,000 & 44,000 \\\text {Units sold }&45,000 & 45,000 & 50,000 & 50,000 & 50,000 \\\text {Fixed manufacturing costs }&\$ 55,000 & \$ 55,000 & \$ 55,000 & \$ 55,000 & \$ 55,000\end{array}\end{array}$$ 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:

Marginal Utility

The additional satisfaction or utility gained by consuming one more unit of a good or service.

Total Utility

The total satisfaction received from consuming a given total quantity of a good or service.

Marginal Utility

The change in satisfaction or benefit derived from consuming an additional unit of a good or service.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.