Question

Rundle Company incurred manufacturing overhead cost for the year as follows. $ 38.80/unit $ 26.70/unit Direct materials Direct labor Manufacturing overhead Variable Pixed ($19.10/unit for 1,100 units) Variable selling and administrative expenses Pixed selling and administrative expenses $ 10.30/unit $21,010 $ 4,620 $14,300 The company produced 1,100 units and sold 600 of them at $180.30 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? Complete this question by entering your answers in the tabs below.

Answer 1

Rundle company Income Statement under absorption costing Particulars 1 Sales Units Sno Amount 600 2 Sales price per unit 3 Sales value(1*2) 4 Direct Material (600*38.8) 5 Direct labour(600*26.7) 6 variable manufacturing overhead(600*10.3) 7 Fixed Manufacturing overhead(19.1*600) 8 Cost of goods sold(4+5+6+7) 9 Contribution margin(3-8) 10 variable selling and administrative overhead 11 Fixed selling and administrative expenses 12 Net Income(9-10-11) 180.3 108180 23280 16020 6180 11460 56940 51240 4620 14300 32320

Income Statement under variable costing Particulars Amount Sno 1 Sales Units 600 2 Sales price per unit 3 Sales value(1*2) 4 Direct Material (600*38.8) 5 Direct labour(600*26.7) 6 variable manufacturing overhead(600*10.3) 7 variable selling and administrative overhead 8 Variable cost(4+5+6+7) 9 Contribution margin(3-8) 10 Fixed Manufacturing overhead 11 Fixed selling and administrative expenses 12 Net Income(9-10-11) 180.3 108180 23280 16020 6180 4620 50100 58080 21010 14300 22770

Computation of bonus amount Bonus@1% on net income Particulars 1 Absorption Costing 2 Variable Costing Net Income Sno 32320 323 22770 228 Conlusion: Under Absorption Costing Manger gets higher amount bonus.