Question - 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: 2014 2015 2016 total. Unit sold 20,000, 20,000 20,000 60,000. Unites produced 20,000 25,000 15,000 60,000. Fixed Production cost $750,000 $750,000 $750,000. Variable production costs per unit $150 $150 $150. Selling price per unit $250 $250 $250. Fixed selling and administrative expense 220,000 $220,000 $220,000.
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.