Rollalong Inc. produces wheelchairs that are sold primarily to hospitals. Rollalong’s three plant managers’ bonuses are based on operating income that is produced using absorption costing. The company suspects that the current buildup of inventory is a result of the managers’ desire for higher bonuses. Senior management wishes to institute an inventory limit to eliminate this inventory buildup without changing or eliminating the bonus structure. The variable cost per wheelchair is $5,500 and the fixed costs for 2020 were $11,019,840. Fixed costs are allocated based on master-budget capacity utilization. Budgeted production was 12,480 chairs and actual sales were 12,000 units. Actual production in 2020 was 13,320. In 2019, inventory increased by 3,000 units and that was also the ending inventory in units.

Required

1. How much did inventory increase in 2020?
2. What amount of fixed costs was absorbed into inventory in 2020?
3. Why may it not be a good idea for senior management to institute an inventory limit?
4. Aside from instituting an inventory limit, how could senior management control the incentive of the plant managers to build up inventory in order to increase their bonuses?