Over a 3-year period, a corporation expects sales of 300 units. To avoid the problems associated with employee turnover, it decided to produce 100 units each year, even though sales are expected to increase. The best estimate of sales is 80 units in Year 1, 100 units in Year 2, and 120 units in Year 3. Variable production costs are $50 per unit, and fixed costs are $1,000 per year (even if production is zero). Under absorption costing, if all expenses are paid in cash, by how much does income exceed cash flows in Year 3?
a. $60
b. $1,200
c. $6,000
d. $0
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