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

question 5

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, when variable costing income is reconciled to absorption costing income, which of the following is true?

• A)In Yr 1, $12,000 is added to variable costing income to find absorption costing income
• B)In Yr 3, $6,887 is added to variable costing income to find absorption costing income
• C)In Yr 2, $5,113 is deducted from variable costing income to find absorption costing income
• D)In Yr 2, $5,113 is added to variable costing income to find absorption costing income
• E)None of the above

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Definitions:

FAB Formula

A sales strategy that focuses on the Features, Advantages, and Benefits of a product to highlight its value to the customer.

Purchase Decision

A buyer’s decision to purchase something.

Preapproach

The preparatory phase where a salesperson gathers information and plans strategies before engaging with a potential customer.