Chapter 21, Problem 1TIATC

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. 1. Prepare the income statement for the quarter using variable costing.
2. 2. Prepare the income statement for the quarter using absorption costing.
3. 3. Why, if at all, is there a difference between operating income under the two methods?