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

question 2

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. $$\begin{array} { | c | c | c | } \hline \text { Hacksaw blades } & \text { Sold } & \text { Produced } \\\hline Y r 1 & 18,000 & 22,000 \\\hline Y r 2~ & 25,000 & 23,000 \\\hline Y r ~ 3 & 37,000 & 35,000 \\\hline\end{array}$$ $$\begin{array} { | c | c | c | } \hline & \text { Sales price } & \text { Full cost } \\\hline \operatorname { Yr } 1 & \$ 10.00 & \$ 6.00 \\\hline \operatorname { Yr } 2 & \$ 11.00 & \$ 6.60 \\\hline \operatorname { Yr } 3 & \$ 12.00 & \$ 7.60 \\\hline\end{array}$$ 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)Variable costing income (VCI) exceeds full costing income (FCI) every year
• B)VCI exceeds FCI in Yrs 1 and 2 only
• C)VCI exceeds FCI in Yrs 2 and 3 only
• D)VCI never exceeds FCI
• E)None of the above

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