25,000 20,500 418 Units produced Units sold Selling price Variable costs Manufacturing cost per unit produced Direct materials Direct manufacturing labor Manufacturing overhead Marketing cost per unit sold 32 21 51 48 Fixed costs Manufacturing costs 1.428,000 1,024,600 1.311,200 Administrative costs Marketing costs 1. Prepare a 2017 income statement for Vacuum Magic Company using variable 2. Prepare a 2017 income statement for Vacuum Magic Company using absorption costing 3. Explain the differences in operating incomes obtained in requirements 1 and 2 4. Vacuum Magic's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modifications could Vacuum Magic management make to improve such a plan? Explain briefly Vacuum Magic Company manufacturers a professional grade vacuum cleaner and began operations in 2017. For 2017, Vacuum Magic budgeted to produce and sell 28,000 units. The company had no price, spending, or efficiency variances and writes off production-volume variance to cost of goods sold. Actual data for 2017 are given as follows: EEB Click the icon to view the actual data for 2017) Read the requirements Requirement 1. Prepare a 2017 income statement for Vacuum Magic Company using variable costing Complete the top half of the income statement first, then complete the bottom portion. (For amounts with a $0 balance, make sure to enter "O" in the appropriate cell.) Variable Costing Revenues Variable cost of goods sold Beginning inventory Variable manufacturing costs Cost of goods available for sale Deduct ending inventory Variable cost of goods sold Variable marketing costs Contribution margin Fixed manufacturing costs Fixed administrative costs Fixed marketing costs Operating income/ (loss) Requirement 2. Prepare a 2017 income statement for Dirt Free Company using absorption costing Complete the top half of the income statement first, then complete the bottom portion. (For amounts with a S0 balance, make sure to enter "0" in the appropriate cell. Label any variances as favorable (F) or unfavorable (U)) Absorption Costing Revenues Cost of goods sold: Beginning inventory Variable manufacturing costs Allocated fixed manufacturing costs Cost of goods available for sale Deduct ending inventory Adjustment for production-volume variance Cost of goods sold Gross margin Variable marketing costs Fixed administrative costs Fixed marketing costs Operating income/(loss) Requirement 3. Explain the differences in operating incomes obtained in requirements 1 and 2. he difference in operating income under absorption costing and variable costing i under absorption costing is greater than the operating income under variable costing because in 2017 inventories increased by absorption lower The 2017 operating income As a result, under fixed costing, a portion of the cost of goods sold than under the other method. overhead remained in inventory and led to a Requirement 4. Dirt Free's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modifications could Dirt Free management make to improve such a plan? Explain briefly
