Brett Stern was hired during January 2022 to manage the home products division of Hi-Tech Products. As part of his employment contract, he was told that he would get $5,000 of additional bonus for every 1 % increase that the division's profits exceeded those of the previous year. 

Soon after coming on board, Brett met with his factory managers and explained that he wanted the factory to be run at full capacity. Previously, the factory had employed just-in-time inventory practices and had consequently produced units only as they were needed. Brett stated that under previous management the company had missed out on too many sales opportunities because it didn't have enough inventory on hand. Because previous management had employed just-in-time inventory practices, when Brett came on board there was virtually no beginning inventory. The unit selling price and unit variable costs remained the same from 2021 to 2022. The following additional information is also provided.

Instructions

a. Calculate Brett's bonus based on the net income shown above.

b. Recompute the 2021 and 2022 results using variable costing.

c. Recompute Brett's 2022 bonus under variable costing.

d. Were Brett's actions unethical? Do you think any actions need to be taken by the company?

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Net income Units produced Units sold Fixed manufacturing overhead costs Fixed manufacturing overhead costs per unit 2021 $ 300,000 25,000 25,000 $1,350,000 $ 54 2022 $ 525,000 30,000 25,000 $1,350,000 $ 45