Chamiching Makes Hacksaw Blades In the First Year, Variable Costs Accounted for Half of First

Multiple Choice

Chamiching makes hacksaw blades. Inventory values are determined using the first in, first out (FIFO) method. Production and sales data for the first three years appear below. $$\begin{array} { | c | c | c | } \hline \text { Hacksaw blades } & \text { Sold } & \text { Produced } \\\hline Y r 1 & 18,000 & 22,000 \\\hline Y r 2~ & 25,000 & 23,000 \\\hline Y r ~ 3 & 37,000 & 35,000 \\\hline\end{array}$$ $$\begin{array} { | c | c | c | } \hline & \text { Sales price } & \text { Full cost } \\\hline \operatorname { Yr } 1 & \$ 10.00 & \$ 6.00 \\\hline \operatorname { Yr } 2 & \$ 11.00 & \$ 6.60 \\\hline \operatorname { Yr } 3 & \$ 12.00 & \$ 7.60 \\\hline\end{array}$$ In the first year, variable costs accounted for half of the full costs. Total fixed production costs increased each subsequent year by 20%, as a result of step-fixed costs and a general inflationary price increase. For Chamiching, when variable costing income is reconciled to absorption costing income, which of the following is true?

A) In Yr 1, $12,000 is added to variable costing income to find absorption costing income
B) In Yr 3, $6,887 is added to variable costing income to find absorption costing income
C) In Yr 2, $5,113 is deducted from variable costing income to find absorption costing income
D) In Yr 2, $5,113 is added to variable costing income to find absorption costing income
E) None of the above