(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 companys board of directors set a target for Year 2 of net operating income of $70,000 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 3,600 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

Chapter 6: Applying Excel 2 3 Data 4 Selling price per unit 5 Manufacturing costs 6 Variable per unit produced 7 Direct materials 8Direct labor 9Variable manufacturing overhead 10 Fixed manufacturing overhead per year 11 Selling and administrative expenses: 12 Variable per unit sold 13 Fixed per year $331 $150 $56 $33 $93,600 $4 $52,000 Year 1 Year 2 16 Units in beginning inventory 17 Units produced during the year 18 Units sold during the year 19 2,600 2,100 1,800 2,100