Absorption vs variable costing.

Regina company manufacturers a professional-grade vaccum cleaner and began operations in 2014. For 2014, Regina company budgeted to produce and sell 20,000 units. The company had no price, spending, or efficiency variance and writes off production-volume variance to cost of goods sold. Data:

Unit produced = 18,000 Unit sold = 17,500 selling price = $450

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 cost = 1,200,000 Administrative costs = 965,450 Marketing = 1,366,400 Questions: 1. Prepare a 2014 income statement using variable costing 2. Prepare a 2014 income statement using absorption costing 3. Explain the differences in operating incomes obtained in requirements 1 and 2 4. Regina'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 Regina management make to improve such a plan? Explain briefly.