2 Absorption versus variable costing. Grunewald Company manufacturers a professional grade vacuum cleaner and began operations in 2011. For 2011, Grunewald 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 2011 are given as follows:

Units produced 18,000

Units sold 17,500

Selling price $425

Variable costs:

Manufacturing cost per unit produced

Direct materials $30

Direct manufacturing labor 25

Manufacturing overhead 60

Marketing cost per unit sold 45

Fixed costs:

Manufacturing costs 1,100,000

Administrative costs 965,450

Marketing 1,366,400

1.Prepare a 2011 income statement for Grunewald Company using variable costing

.2.Prepare a 2011 income statement for Grunewald Company using absorption costing.

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

4.Grunewald's management is considering implementing a bonus for the supervisorsbased upon gross margin under absorption costing.What incentives will thiscreate for the supervisors?What modifications could Grunewald management make toimprove such a plan?Explain briefly.