Home Products Inc has failed to reach its planned activity level operation. The
ID: 2541954 • Letter: H
Question
Home Products Inc has failed to reach its planned activity level operation. The following table shows the relationship between units produc normal activity for these years and t have remained the same for the last two years and are expected to do so in Year 3. Income has been positive in both Year 1 and Year 2. i during its first two years of ed, sales, and he projected relationship for Year 3. All prices and costs Units Year 1 Year 2 Year 3 Produced Sales 90,000 90,00 95,000 95,00 95,00 90,00 Planned Production 100,000 00,000 Because Home Products uses a full costing system, one would predict operating income f Year 3 to be: O Greater than operating income under variable costing. O Less than year 2. O The same as operating income under varfable costing. O Less than the operating income under variable costing.Explanation / Answer
Because Home Products uses a full costing system, one would predict operating income for Year 3 to be:
Answer - Greater than operating income under variable costing.
This is because the inventory is left and the fixed costs absorbed will be less thus profit will be higher under full costing.