Regina Company manufacturers a professional- grade vacuum cleaner and began operations in 2014. For 2014, Regina budgeted to produce and sell 20,000 units. The company had no price, spending, or efficiency variances and writes off production- volume variance to cost of goods sold. Actual data for 2014 are given as follows:

Required

1. Prepare a 2014 income statement for Regina Company using variable costing.

2. Prepare a 2014 income statement for Regina Company using absorption costing.

3. Explain the differences in operating incomes obtained in requirements 1 and 2.

4. Regina’s management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modi-fications could Regina management make to improve such a plan? Explainbriefly.

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Units produced Units sold Selling price Variable costs 18,000 17,500 S 450 Manufacturing cost per unit produced Direct materials Direct manufacturing labor 30 25 60 45 Marketing cost per unit sold Fixed costs Manufacturing costs Administrative costs $1 200,000 965 450 Marketing 1,366,400