Prepare an income statement using absorption costing. Prepare an income statemen
ID: 2536611 • Letter: P
Question
Prepare an income statement using absorption costing.
Prepare an income statement using variable costing.
Determine the manager’s bonus using each approach. Which approach would you recommend for internal reporting? (Round your intermediate calculations and final answers to the nearest whole dollar amount.)
Perez Company incurred manufacturing overhead cost for the year as follows: Direct materials Direct labor Manufacturing overhead $ 38.70/unit $ 27.80/unit Variable 11.60/unit Fixed ($20.00/unit for 1,300 units) $26,000 Variable selling and administrative expenses6,320 $14,500 Fixed selling and administrative expenses The company produced 1,300 units and sold 800 of them at $181.40 per unit. Assume that the production manager is paid a 3 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?Explanation / Answer
a)
b)
3.
PEREZ COMPANY Income Statement Absorption Costing Sales (800*$181.40) $ 145,120 Less: Cost of Goods Sold (800*($38.70+$27.80+$11.60+$20)) $ 78,480 Gross Margin $ 66,640 Less: Selling and administrative expense Variable $ 6,320 Fixed $ 14,500 Total selling and administrative expense $ 20,820 Net income (loss) $ 45,820