Munoz Company incurred manufacturing overhead cost for the year as follows.

Direct materials	$	39.70	/unit
Direct labor	$	26.70	/unit
Manufacturing overhead
Variable	$	11.80	/unit
Fixed ($18.50/unit for 1,300 units)	$	24,050
Variable selling and administrative expenses	$	5,920
Fixed selling and administrative expenses	$	14,400

The company produced 1,300 units and sold 800 of them at $180.70 per unit. Assume that the production manager is paid a 1 percent bonus based on the companys net income.

Required

1. Prepare an income statement using absorption costing.

2. Prepare an income statement using variable costing.

3. Determine the managers bonus using each approach. Which approach would you recommend for internal reporting?

A

Costs of goods sold

B.

Variable Costs

C.

Absorption Costing
Variable costing
Reccomended?