Chapter 9 Problem 22

Grunewal Company manufactures a professional grade vacuums cleaner and began operations in 2011. For 2011, Grunewald budgeted to produce and sell 20,000 units. The company had no price, spending, or efficiency variances, and writets off production-volume variance to cost of goods sold. Actual data for 2011 are given as follow:

Units produced 18,000

Units Sold 17,500

Selling price $425

Variable costs:

Manudacturing cost per unit produced

Direct materials $30

Direct manufacturing laor $25

Manufacturing overhead $60

Marketing cost per unit sold $45

Fixed costs:

Manufacturing costs $1,100,000

Administrative costs $965,450

Marketing $1,366,400

1. Prepare a 2011 income statement for Grunewald Company using variable costing

2. Prepare a 2011 income statement for Grunewald Company using absorption costing.

3. Explain the differences in operating incomes obtained in requirement 1 and 2.

4. Grunewald's management is considering implementing a bonus for the supervisors based on gross mamrgin under absorption costing. What incentives will this create for the supervisors? What modifications could Grunewald management management make to improve such a plan?? exlain briefly.