Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows:
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Required:
a. Calculate profit and the value of ending inventory for each year using full costing.
b. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
c. Calculate profit and the value of ending inventory for each year using variable costing.
d. Explain why, using variable costing, profit does not fluctuate from year to year.