Absorption, variable, and throughput costing. The Waterloo, Ontario, plant of Maple Leaf Motors assembles the Icarus motor vehicle. The standard unit manufacturing cost per vehicle in 2007 is Direct materials $7,200 Direct manufacturing labour 2,160 Variable manufacturing overhead Fixed manufacturing overhead 2,400

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The Waterloo plant is highly automated. Maximum productive capacity per month is 4,000 vehicles. Variable manufacturing overhead is allocated to vehicles based on assembly time on the line. The standard assembly time per vehicle is 20 hours. Fixed manufacturing overhead in 2007 is allocated based on the standard assembly time for the budgeted normal capacity utilization ofthe plant. In 2007, the budgeted normal capacity utilization is 3,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $9,000,000.
On January 1, 2007, there is zero beginning inventory of Icarus vehicles. The actual unit production and sales figures for the first three months of 2007 are January February March Production 3,200 2,400 3,800 Sales 2,000 2,900 3,200 Assume no direct-materials variances, no direct manufacturing labour variances, and no man¬
ufacturing overhead spending or efficiency variances in the first three months of 2007.
Pierre Rougeau, a vice-president ofMaple LeafMotors, is the manager ofthe Waterloo plant. His compensation includes a monthly bonus that is 0.5% ofmonthly operating income.
Operating income is calculated using absorption costing. Maple Leaf Motors reports monthly absorption costing income statements. Each month an adjustment to cost of goods sold is made for the total manufacturing variances occurring in that month.
The Waterloo plant “sells” each Icarus to Maple Leaf’s marketing subsidiary at $19,200 per vehicle. No marketing costs are incurred by the Waterloo plant.
Instructions Form groups of two or more students to complete the following requirements.
Required 1. Compute

(a) the unit fixed manufacturing overhead cost and

(b) the unit total manufacturing cost.
2. Compute the monthly operating income forJanuary, February, and March under absorption costing. What bonus is paid each month to Rougeau?
3. How much would the use of variable costing change the bonus paid each month to Rougeau if the same 0.5% figure is applied to variable costing operating income?
4. Explain the differences in the bonuses paid each month to Rougeau in requirements 2 and 3.
5. How much would the use of throughput costing change the bonus paid each month to Rougeau if the same 0.5% figure is applied to throughput costing operating income?
6. Describe different approaches Maple Leaf Motors could use to reduce the dysfunctional aspects associated with absorption costing at its Waterloo plant.