Absorption Costing and Ethics

"There must be something wrong with these statements!" exclaimed Hugh Richards, president of Ajax Inc. "They just don't make sense. We sold the same number of units this year as we did last year, yet our profits have tripled! Who messed up the calculations?" Ajax Inc. is a medium-sized supplier of plastic components to the automobile industry and has been in business for 25 years. Sales forecasting has been relatively easy to do in the past since Ajax has had long-term, single- sourcing relationships with most of its customers. In 2015, however, there was a threat of a strike at one of Ajax Inc.'s major raw materials suppliers. For that reason, Ajax management decided to purchase more raw materials and produce more components in 2015 than actually required, in anticipation of raw materials shortages in 2016. Manufacturing equipment was typically operated below capacity, so this boost in production was possible without incurring significant increased fixed manufacturing costs. The income statement and production reports to which Richards was referring are shown below