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Gibson Company incurred manufacturing overhead cost for the year as follows. Direct materials Direct labor Manufacturing overhead Variable Fixed ($19.30/unit for 1,900 units) Variable selling and administrative expenses Fixed selling and administrative expenses $ 38.20/unit $ 26.10/unit $ 11.10/unit $36,670 $ 9,100 $14,200 The company produced 1,900 units and sold 1,400 of them at $181.30 per unit. Assume that the production manager is paid a 1 percent bonus based on the company's net income. Required a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. c. Determine the manager's bonus using each approach. Which approach would you recommend for internal reporting?

Gibson Company incurred manufacturing overhead cost for the year as follows. Direct materials Direct labor Manufacturing overhead Variable Fixed ($19.30/unit for 1,900 units) Variable selling and administrative expenses Fixed selling and administrative expenses $ 38.20/unit $ 26.10/unit $ 11.10/unit $36,670 $ 9,100 $14,200 The company produced 1,900 units and sold 1,400 of them at $181.30 per unit. Assume that the production manager is paid a 1 percent bonus based on the company's net income. Required a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. c. Determine the manager's bonus using each approach. Which approach would you recommend for internal reporting?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter9: Standard Costing: A Functional-based Control Approach
Section: Chapter Questions
Problem 30P: Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following...
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Gibson Company incurred manufacturing overhead cost for the year as follows. Direct materials Direct labor Manufacturing overhead Variable Fixed ($19.30/unit for 1,900 units) Variable selling and administrative expenses Fixed selling and administrative expenses $ 38.20/unit $ 26.10/unit $ 11.10/unit $36,670 $ 9,100 $14, 200 The company produced 1,900 units and sold 1,400 of them at $181.30 per unit. Assume that the production manager is paid a 1 percent bonus based on the company's net income. Required a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. c. Determine the manager's bonus using each approach. Which approach would you recommend for internal reporting?
Transcribed Image Text:Gibson Company incurred manufacturing overhead cost for the year as follows. Direct materials Direct labor Manufacturing overhead Variable Fixed ($19.30/unit for 1,900 units) Variable selling and administrative expenses Fixed selling and administrative expenses $ 38.20/unit $ 26.10/unit $ 11.10/unit $36,670 $ 9,100 $14, 200 The company produced 1,900 units and sold 1,400 of them at $181.30 per unit. Assume that the production manager is paid a 1 percent bonus based on the company's net income. Required a. Prepare an income statement using absorption costing. b. Prepare an income statement using variable costing. c. Determine the manager's bonus using each approach. Which approach would you recommend for internal reporting?
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