Calculate the president's bonus for 2017 Evaluate the performance of the new president in 2017 . Did he do as good a job as the numbers in part (a) suggest Solution Income Statement 2017 ($millions) 1. Absorption costing where some fixed cost can be absorbed in the inventory Revenue (18 at $2) 36 Less cost off goods sold Variable cost (18 @ 0.5 ) (9) Fixed cost (18/45 * 20million) (8) (17 ) Gross Margin 19 Less Selling and Admin (8) Operating Proffits 11 President's Bonus (% 15) $ 1.65 2. Using Variable costing where all ffixed costs are written off Revenue 36 Less Cost off goods sold Variable cost (9) Fixed cost (20 ) (29) Gross Margin Less Selling and Admin (8) Operating Proffit (1 ) President's bonus (%15) Inventory valuation Variable costs ((45 - 18) @ 0.5) 13.5 Fixed costs (27/45 * 20) 12 Ending inventory value 25.5 Unlike absorption costing system which absorbed some off the ffixed cost into the unsold inventory, Variable costing system write off all the cost incurred in that year. Hence reducing the operating proffit ffrom $11 million to an operating loss off $1 million. Though there was a loss using variable costing system, the loss was smaller than what the company had lost the year beffore. This improvement can be attributed to three things the president did; increased in sales, increased in production and the increased in marketing