Question

Q1. Do you feel that absorption costing inflates profits? Are these profits real?

Q2. Assume that a car manufacturer produces two products, Auto A and Auto B. Auto A sells for $23,000 each and Auto B, a more luxurious product, sells for $32,000 each. VC for Auto A = $10,000 each and its FC runs at $100,000 per period. Auto B, on the other hand, has a cost structure of VC = $15,000 and FC = $150,000 per period. If the company's target profit is $200,000 per the period, how many Auto As and Auto Bs should it estimate selling to achieve its target income?

Answer 1