Home Insert Page Layout Formulas Data 1 Units produced 2 Units sold 3 Selling price 4 Variable costs: 21,000 18,500 432 Manufacturing cost per unit produced: Direct materials 33 23 Direct manufacturing labor Manufacturing overhead Marketing cost per unit sold 10 Fixed costs: 62 46 $1,550,000 Manufacturing costs 11 Administrative costs 906,300 12 Marketing costs 13 1,479,000 1. Prepare a 2017 income statement for Horace Company using variable costing. 2. Prepare a 2017 income statement for Horace Company using absorption costing. 3. Explain the differences in operating incomes obtained in requirements 1 and 2. 4. Horace's management is considering implementing a bonus for its supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modi- fications could Horace management make to improve such a plan? Explain briefly. Required %24

Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter11: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 11.2E: Identify cost graphs The following cost graphs illustrate various types of cost behavior: For each...
icon
Related questions
Topic Video
Question

Absorption versus variable costing. Horace Company manufactures a professional-grade vacuum cleaner and began operations in 2017. For 2017, Horace budgeted to produce and sell 25,000 units. The company had no price, spending, or efficiency variances and writes off production-volume variance to cost of goods sold. Actual data for 2017 are given as follows:

Home
Insert
Page Layout
Formulas
Data
1 Units produced
2 Units sold
3 Selling price
4 Variable costs:
21,000
18,500
432
Manufacturing cost per unit produced:
Direct materials
33
23
Direct manufacturing labor
Manufacturing overhead
Marketing cost per unit sold
10 Fixed costs:
62
46
$1,550,000
Manufacturing costs
11
Administrative costs
906,300
12
Marketing costs
13
1,479,000
1. Prepare a 2017 income statement for Horace Company using variable costing.
2. Prepare a 2017 income statement for Horace Company using absorption costing.
3. Explain the differences in operating incomes obtained in requirements 1 and 2.
4. Horace's management is considering implementing a bonus for its supervisors based on gross margin
under absorption costing. What incentives will this bonus plan create for the supervisors? What modi-
fications could Horace management make to improve such a plan? Explain briefly.
Required
%24
Transcribed Image Text:Home Insert Page Layout Formulas Data 1 Units produced 2 Units sold 3 Selling price 4 Variable costs: 21,000 18,500 432 Manufacturing cost per unit produced: Direct materials 33 23 Direct manufacturing labor Manufacturing overhead Marketing cost per unit sold 10 Fixed costs: 62 46 $1,550,000 Manufacturing costs 11 Administrative costs 906,300 12 Marketing costs 13 1,479,000 1. Prepare a 2017 income statement for Horace Company using variable costing. 2. Prepare a 2017 income statement for Horace Company using absorption costing. 3. Explain the differences in operating incomes obtained in requirements 1 and 2. 4. Horace's management is considering implementing a bonus for its supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modi- fications could Horace management make to improve such a plan? Explain briefly. Required %24
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

Blurred answer
Knowledge Booster
Performance measurements
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
Financial & Managerial Accounting
Financial & Managerial Accounting
Accounting
ISBN:
9781337119207
Author:
Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College