Firemaster BBQ produces stainless steel propane gas grills. The company has been in operation for three years, and sales have declined each year due to increased competition. The following information is available:
Required:
a. Calculate profit and the value of ending inventory (using LIFO) for each year under full costing.
b. Calculate profit and the value of ending inventory for each year under variable costing.
c. Explain how management of Firemaster could manipulate earnings in 2012 by producing more units than are actually needed to meet demand. Could this approach to earnings management be repeated year after year?