Dilia Company incurred manufacturing overhead cost for the year as follows: Direct materials $ 50 /unit Direct labor $ 35 /unit Manufacturing overhead Variable $ 15 /unit Fixed ($25/unit for 1,500 units) $ 37,500 Variable selling and administrative expenses $ 10,500 Fixed selling and administrative expenses $ 20,000
The company produced 1,500 units and sold 1,200 of them at $225 per unit. Assume that the production manager is paid a 2 percent bonus based on the company’s net income.
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?