Given the following information:

Prior Year (Budget and Actual)

Current Year (Budget and Actual)

Beginning Inventory (Units)

0

?

Sales (Units)

600,000

575,000

Manufactured (Units)

600,000

640,000

Selling Price ($/unit)

9.90

10.00

Variable Manufacturing Cost ($/unit)

4.80

5.00

Total Fixed Manufacturing Costs ($)

1,560,000

1,600,000

Variable Selling Cost ($/unit)

1.00

1.00

Total Fixed SG&A Costs ($)

351,000

358,000

Other information:

• The manufacturer uses FIFO.
• All Variable costs are direct costs

Required:

1. Prepare an income statement for the Current Year based on Variable Costing.

1. Prepare an income statement for the Current Year based on Absorption Costing.

1. Reconcile the difference in Net Income between Variable Costing and Absorption Costing for the current year.

1. Near the very end of the fiscal year, the production manager noted that if Net Income increases by $200 they will get a big bonus.How can the production manager increase Net income using Absorption costing even though no additional units will be produced?