Inventory Management: The information below represents the beginning and ending inventory amounts along with the production and sales for the month in umbrella units.

Beginning Inventory: 0 Umbrellas

Production: 80,000 Umbrellas

Sales: 60,000 Umbrellas

Ending Inventory: 20,000 Umbrellas

Using the information provided above and the costs and sales information provided in Section I, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section II:

Prepare a variable costing income statement. Done:

Hampshire Company
Variable Costing Income Statement
	Units	$
Sales	60,000	$12.50		$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory			$
Direct Materials	80,000	$3.00	$240,000.00
Direct Labor	80,000	$1.50	$120,000.00
Manufacturing Overhead	80,000	$0.40	$32,000.00
Total Variable Costs			$392,000.00
Cost of Good Available for Sale	80000	$4.90	$392,000.00
Deduct Ending Inventory	20,000	$4.90	$98,000.00
Variable Costs of Goods Sold				$294,000.00
Variable Selling Costs	60,000	$1.10	$66,000.00	$66,000.00
Contribution Margin				$390,000.00
Fixed Costs:
Fixed Manufacturing Costs				$216,000
Fixed Administrative Costs				$79,525
Operating Income				$94,475.00

Prepare an absorption costing income statement. Done:

Hampshire Company
Absorption Costing Income Statement
	Units	$
Sales	60,000	$12.50		$750,000.00
Variable Cost of Goods Sold:
Beginning Inventory			$0
Direct Materials	80,000	$3.00	$240,000.00
Direct Labor	80,000	$1.50	$120,000.00
Manufacturing Overhead	80,000	$0.40	$32,000.00
Total Variable Costs			$392,000.00
Allocated Fixed Manufacturing Costs	80,000	$2.70	$216,000.00
Cost of Good Available for Sale			$608,000.00
Deduct Ending Inventory	20,000	$7.60	$152,000.00
Costs of Goods Sold				$456,000.00
Gross Margin				$294,000.00
Fixed Costs:
Variable Selling Costs	60,000	$1.10		$66,000
Fixed Administrative Costs				$79,525
Operating Income				$148,475.00

Inventory management serves to minimize the cost to maintain inventory and maximize returns. In this section, the companys financial data will be reviewed in order to determine the optimal inventory management system.

PLEASE HELP ANSWER:

B. Describe how the absorption costing method should be used by decision makers to fulfill their responsibilities. Support your response with examples.