Inventory Costing Methods/Production Manager Bonus

Begin by reading the following scenario:

NetWest, Inc., assembles single-engine aircraft at several facilities throughout the United States. The standard manufacturing costs per aircraft are as follows:

Direct materials$35,000Direct manufacturing labor$12,800Variable manufacturing overhead$10,000Fixed manufacturing overhead$13,000Total manufacturing cost$70,800

Variable manufacturing overhead is allocated to aircraft on the basis of assembly time. The standard assembly time per aircraft is 200 hours. Each facility has a practical capacity of 4,000 aircraft per month. The budgeted monthly fixed manufacturing overhead is $39 million per facility. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity of the facility with a budgeted normal capacity utilization of 3,000 aircraft per month.

At one of NetWest's newest facilities, the Hamburg plant, actual production was 9,400 airplanes and sales were 8,100 airplanes for the first quarter of operations.

Peter Boyle is the production manager of the Hamburg plant. His compensation package includes a bonus that is calculated as 0.15% of the quarterly operating income. The Hamburg plant is credited with revenue (net of period costs) of $95,000 for the sale of each aircraft assembled at the plant.

In your initial post:

1. Compute operating income and the manager's bonus under the absorption, variable and throughput costing methods. If you were Peter Boyle, which method of determining your bonus would you prefer? Elaborate your response based on your calculations.
2. Assuming the absorption method is currently used to determine Peter's bonus, brainstorm at least two approaches that NetWest, Inc. could take to reduce possible inventory buildup and/or other unfavorable behavior associated with this method.