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?

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

Variable Costing Income statement
for the Current Year
Sales				$ 5,750,000.00
Less: Variable Expense
Variable Manufacturing Cost		$ 2,875,000.00
Variable Selling Cost		$ 575,000.00		$ 3,450,000.00
Contribution Margin				$ 2,300,000.00
Less: Fixed Expense
Fixed Manufacturing Costs		$ 1,600,000.00
Fixed SG&A Costs		$ 358,000.00		$ 1,958,000.00
Income				$ 342,000.00
Absorption Costing Income Statement
for the Current Year
Sales			$ 5,750,000.00
Less: Cost of Goods Sold			$ 4,312,500.00
Gross Profit			$ 1,437,500.00
Less: SG&A
Variable SG&A	$ 575,000.00
Fixed SG&A	$ 358,000.00		$ 933,000.00
Income			$ 504,500.00

Reconciliation of Income Statement
for the Current Year
Net Income under Variable Costing	$ 342,000.00
Fixed Manufacturing Overhead deferred in Inventory (65,000 * ($ 1,600,000 / 640,000)	$ 162,500.00
Net Income under Absorption Costing	$ 504,500.00