Using the data from Table 10–6, recast the analysis with one change of assumption: Instead of assuming that an additional $17,000 of overhead was incurred in both years, assume that overhead was lower each year by $10,000. How do incentives change regarding the treatment of the $10,000 savings?

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TABLE 10-6 Net Income under Absorption Costing and Variable Costing with an Additional $17,000 of Overhead A. Absorption Costing Sales Direct labor and materials Overhead absorbed: $87,000 -X 10,000 10,000 $90,000 11,000 Net income x 10,000 ($40,000+ $17,000) Net income Year 1 (20,000) $110,000 (87,000) (107,000) $ 3,000 B. Variable Costing, with $17,000 Treated as Additional Fixed Cost Sales $110,000 Direct labor and materials Variable overhead Fixed overhead (20,000) (30,000) (57,000) Year 2 (20,000) (81,818) (20,000) (30,000) (107,000) (57,000) $ 3,000 $110,000 (101,818) $ 8,182 $110,000 (107,000) $ 3,000