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

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: 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
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