Fighting Kites produces several different kite kits. Last year, the company produced 20,000 kits and sold all but 2,000 kits. The kits sell for $30 each. Costs incurred are listed here.
Materials purchased ........... $ 50,000
Materials used ............. 40,000
Other variable production costs ....... 60,000
Fixed production costs .......... 100,000
Variable selling costs ........... 18,000
Fixed selling and administrative costs ... 100,000
Beginning inventory last year held 2,000 kits. Assume that under variable costing, the value of this inventory would have been $10,000. Assume that under absorption costing, the value of this inventory would have been $15,000. The company used the LIFO cost flow assumption.
A. If Fighting Kites uses variable costing, what was its operating income?
B. If Fighting Kites uses throughput costing, what was its operating income?
C. If Fighting Kites uses absorption costing and normal volume of 25,000, what was its operating income?
D. If you were asked to make a recommendation for the absorption costing denominator level for next period’s operations, what would you suggest? Explain your choice.
E. If the manager of Fighting Kites is given a bonus based on income, which type of income statement would you recommend evaluating manager performance? Explain your choice.