Question

Before you begin this assignment review the Tying It All Together feature in the chapter.

CF Industries Holdings, Inc, is one of the largest manufacturers and distributors of nitrogen fertilizer and other nitrogen products in the world. The corporation often produces and stores large amounts of inventory during periods of low demand to ensure that there is enough product to meet the demand of peak seasons Assume that one line of fertilizer (with no beginning Finished Goods Inventory) had the following data during a time period of low demand:

Given that the Time Period has low demand, assume the company produced 1,000,000 cases but only sold 250,000 cases.

Requirement

  1. Prepare the income statement for the quarter using variable costing.
  2. Prepare the income statement for the quarter using absorption costing.
  3. Why, if at all, is there a difference between operating income under the two methods?
Sales price
Variable manufacturing costs
Fixed manufacturing costs
Variable selling and administrative costs
Fixed selling and administrative costs
$ 20.00 per case
4.00 per case
100,000 per quarter
2.00 per case
45,000 per quarter
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Transcribed Image Text

Sales price Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs Fixed selling and administrative costs $ 20.00 per case 4.00 per case 100,000 per quarter 2.00 per case 45,000 per quarter