Sampson Company operates a manufacturing facility where several products are made. Deach product is considered a business segment, and the product managers have the opportunity to receive a bonus based on the profit of the segment. Franco Hopper is the manager for the scissors product line. Production and sales for the scissors product line loene for the past three years are shown below:                              Year 1: Year 2: Year 3:Units produced 100,000 125,000 160,000Units sold 100,000 100,000 100,000Sales price per unit 12.00 12.00 12.00Variable manufacturing cost per unit 5.00 5.00 5.00Total fixed manufacturing cost 200,000 200,000 200,000 Hopper’s bonus is .5% of the gross profit of the scissors product line, based on absorption costing. Upper management is discussing changing the bonus system so that bonuses are based on operating income using variable costing. Hopper is opposed to this change and has been trying to convince the other product managers to join him in voicing their opposition. There are no beginning inventories in year 1.  Prepare an income statement for the three years using absorption costing.

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Asked Mar 16, 2020
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Sampson Company operates a manufacturing facility where several products are made. Deach product is considered a business segment, and the product managers have the opportunity to receive a bonus based on the profit of the segment. Franco Hopper is the manager for the scissors product line. Production and sales for the scissors product line loene for the past three years are shown below:

                              Year 1: Year 2: Year 3:

Units produced 100,000 125,000 160,000

Units sold 100,000 100,000 100,000

Sales price per unit 12.00 12.00 12.00

Variable manufacturing cost per unit 5.00 5.00 5.00

Total fixed manufacturing cost 200,000 200,000 200,000

 

Hopper’s bonus is .5% of the gross profit of the scissors product line, based on absorption costing. Upper management is discussing changing the bonus system so that bonuses are based on operating income using variable costing. Hopper is opposed to this change and has been trying to convince the other product managers to join him in voicing their opposition. There are no beginning inventories in year 1. 

 

  1. Prepare an income statement for the three years using absorption costing.
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Expert Answer

Step 1

Absorption Costing

Absorption costing is compulsory under Generally Accepted Accounting Principles (GAAP) for financial statements circulated to the external users. Under absorption costing, the cost of go...

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