Change all of the numbers in the data area of your worksheet so that it looks like this:

Selling price per unit: $$309$

Manufacturing costs:

Variable per unit produced:

Direct Materials: $$110$

Direct Labor: $$53$

Variable Manufacturing Overhead: $$27$

Fixed Manufacturing overhead per year: $$148,800$

Selling and administrative expenses:

Variable per unit sold: $$7$

Fixed per year: $78,000$

Units in begging inventory: Year $1=0$ Year $2$:

Units produced during the year: Year $1=3,100$ Year $2=2,400$

Units sold during the year: Year $1=2,700$ Year $2=2,700$

If your formulas are correct, you should get the correct answers to the following questions.

$($a$)$ What is the net operating income $($loss$)$ in Year $1$ under absorption costing? $($Loss amounts should be indicated with a minus sign.$)$

$($b$)$ What is the net operating income $($loss$)$ in Year $2$ under absorption costing? $($Loss amounts should be indicated with a minus sign.$)$

$($c$)$ What is the net operating income $($loss$)$ in Year $1$ under variable costing? $($Loss amounts should be indicated with a minus sign.$)$

$($d$)$ What is the net operating income $($loss$)$ in Year $2$ under variable costing? $($Loss amounts should be indicated with a minus sign.$)$

$($e$)$ The net operating income $($loss$)$ under absorption costing is less than the net operating income $($loss$)$ under variable costing in Year $2$ because: $($You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.$)$

check all that apply

Units were left over from the previous year.unanswered

The cost of goods sold is always less under variable costing than under absorption costing.unanswered

Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing.unanswered

$3.$

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

At the end of Year $1,$ the company$$s board of directors set a target for Year $2$ of net operating income of $$140,000$ 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 $4,800$ units.

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

multiple choice $1$

Yes

No

$($b$)$ What is the net operating income $($loss$)$ in Year $2$ under absorption costing? $($Loss amounts should be indicated with a minus sign.$)$

$($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 $2,700$ units per year?

multiple choice $2$

Yes

No