The Grand Rapid Corporation has two identical divisions: Western and Northern. Their sales, production volume, and fixed manufacturing costs have been the same for both divisions for the last five years and are as follows:
Western uses absorption costing and Northern uses variable costing. Both use FIFO inventory methods. Variable manufacturing costs are $5 per unit. Both have identical selling prices and selling and administrative expenses. There were no Year 1 beginning inventories.
Determine the difference in profits for each division for Years 1 through 5. Explain why profits differ between the two divisions.

Question

The Grand Rapid Corporation has two identical divisions: Western and Northern. Their sales, production volume, and fixed manufacturing costs have been the same for both divisions for the last five years and are as follows:
  Western uses absorption costing and Northern uses variable costing. Both use FIFO inventory methods. Variable manufacturing costs are $5 per unit. Both have identical selling prices and selling and administrative expenses. There were no Year 1 beginning inventories.
Determine the difference in profits for each division for Years 1 through 5. Explain why profits differ between the two divisions.

Quizplus · Accepted Answer

The Answer of The Grand Rapid Corporation has two identical divisions: Western and Northern. Their sales, production volume, and fixed manufacturing costs have been the same for both divisions for the last five years and are as follows:
  Western uses absorption costing and Northern uses variable costing. Both use FIFO inventory methods. Variable manufacturing costs are $5 per unit. Both have identical selling prices and selling and administrative expenses. There were no Year 1 beginning inventories.
Determine the difference in profits for each division for Years 1 through 5. Explain why profits differ between the two divisions.

The Grand Rapid Corporation Has Two Identical Divisions: Western and Northern