(e)	The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because (Select all that apply.):

3.

Make a note of the absorption costing net operating income (loss) in Year 2.

At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $160,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 4,600 units.

(a)

Would this change result in a bonus being paid to the CEO?

	Yes
	No

(b)	What is the net operating income (loss) in Year 2 under absorption costing?

(c)

Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,100 units per year?

	Yes
	No

Data Selling price per unit Manufacturing costs: Variable per unit produced: $331 Direct materials $150 Direct labor $56 Variable manufacturing overhead Fixed manufacturing overhead per year Selling and administrative expenses: $33 $93,600 $4 Variable per unit sold Fixed per year $52,000 Year 1 Year 2 Units in beginning inventory Units produced during the year Units sold during the year 2,600 1,800 2,100 2,100