Exercise 11-16A (Algo) Variable costing versus absorption costing LO 11-4Gibson Company incurred manufacturing overhead cost for the year as follows. Direct materials$38.10/unitDirect labor$26.80/unitManufacturing overhead Variable$10.90/unitFixed ($19.00/unit for 1,200 units)$22,800 Variable selling and administrative expenses$5,390 Fixed selling and administrative expenses$15,900 The company produced 1,200 units and sold 700 of them at $182.00 per unit. Assume that the production manager is paid a 2 percent bonus based on the company’s net income. RequiredPrepare 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?

Absorption costing refers to a method of accounting where all costs in relation to the production of…

Answered: Exercise 11-16A (Algo) Variable costing…

Accounting

27th Edition

ISBN:9781337272094

Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Chapter21: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 21.28EX: Appendix Absorption costing income statement On June 30, the end of the first month of operations,...

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Exercise 11-16A (Algo) Variable costing versus absorption costing LO 11-4

Gibson Company incurred manufacturing overhead cost for the year as follows.


Direct materials	$	38.10	/unit
Direct labor	$	26.80	/unit
Manufacturing overhead
Variable	$	10.90	/unit
Fixed ($19.00/unit for 1,200 units)	$	22,800
Variable selling and administrative expenses	$	5,390
Fixed selling and administrative expenses	$	15,900

The company produced 1,200 units and sold 700 of them at $182.00 per unit. Assume that the production manager is paid a 2 percent bonus based on the company’s net income.

Required

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?

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