Five-Star Manufacturing Co. rewards the company's plant manager with a year-end bonus based on the increase in the plant's operating income. For purposes of determining the manager's bonus, should operating income be calculated using variable costing or absorption costing? Support your recommendation with facts and analysis of textbook material.
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- Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts. The controller at Marine Components chose direct labor cost as the allocation base in year 2, based on what she considered reflected the relation between overhead and direct labor cost. Year 3 is approaching and again the company only expects two clients: client 1 and client 3. Work for client 1 will continue to be billed using fixed-price contracts, and client 3 will be billed based on cost-plus contracts. Manufacturing overhead for year 3 is estimated to be $12 million. Other budgeted…1. Compare and explain differences in the support-department costs allocated to eachproduction department. 2. What approaches might be used to decide the sequence in which to allocate supportdepartments when using the step-down method?Your Company uses activity-based costing and has estimated its costs for next year in the table below. How much of these costs would the company assign to activity cost pools? Plant manager's salary $97,000 Salary of advertising manager $135,000 Salary of electrician in manufacturing plant $62,000 Direct labor $75,000 Salary of janitor in headquarters building $65,000 Sales commission $27,000 Group of answer choices $359,000 $159,000 $461,000 $200,000
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- APPLY THE CONCEPTS: Prepare a contribution margin income statement Assume that you are part of the accounting team for Starr Productions. The company has only one product that sells for $40 per unit. Starr estimates total fixed costs to be $3,700. Starr estimates direct materials cost of $12.00 per unit, direct labor costs of $15.00 per unit, and variable overhead costs of $3.00 per unit. The CEO would like to see what the gross margin and operating income will be if 600 units are sold in the next period. Prepare a contribution margin income statement. Starr Productions Contribution Margin Income Statement Sales Less: Variable costs Contribution margin Less: Fixed costs Operating incomeThe types of costs: Direct fixed cost, contribution margin, Gross margin, step variable, Indirect fixed cost, variable cost and Initial investment.