Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman

Exercise 25

MAPICS Co. uses full absorption costing and has the following cost structure:

In the first year of production, MAPICS produced 1.4 million units and sold 1.0 million units. In the second year, MAPICS sold 1.0 million units but produced 0.8 million units. Fixed manufacturing costs are allocated to products using normal volume. There was no beginning inventory in year 1, and FIFO is used to value inventories. Any unabsorbed or overabsorbed overhead is written off to cost of goods sold.
Required:
a. Analyze the change in profitability between years 1 and 2.
b. What would profits have been if 0.6 million units were produced in the second year