Patel company is a family-owned business and which you own 20% of the common stock and your brother and sister onw the remaining shares.The employment contract of Patel's new president Ran Moss, stipulates base salary of 128,000 per year plus 10% of income from operations in excess of 340,000. Moss uses the absorption costing method of reporting income from operations, which has averaged approximately 480,000 for the past several years

Sales for 2012, Moss's first year as a president of Patel company, are estimated at 40,000 units of the selling price of $96 per unit.To maximize the use of Patels productivity capacity , Moss has decided to manufacture 50,000 units rather than the 40,000 units of estimated sales. the beginning inventory at January 1st 2012 is insignificant in amount, and the manufacturing costs and selling and administrative expenses for the production of 40,000 and 50,000 units are as follows:

Manufacturing cost:

Variable 40,000 / $45 / 1,800.000

Fixed. 40,000 / $10 / 400.000

Total. /$55 / 2,200.000

Selling and administrative expenses:

Variable. 960,000

Fixed 320,000

Total 1,280,000

50,000 Units to Be Manufactured

Number of units / unit cost / total cost

Manufacturing cost:

Variable 50,000 / $45 / 2,250.000

Fixed. 50,000 /$8. / 400.000

Total. / $53. / 2,650.000

Selling and administrative expenses:

Variable 960,000

Fixed 320,000

Total 1,280,000

1-In one group, prepare an absorption costing income statement for the year ending December 31,2012, based on sales of 40,000 units and the manufacture of 40,000 units. In the other group, conduct the same analysis, assuming production of 50,000 units.

2-explain the defense in the income from operation reported in (1).

3-compute Mosss total salary for the year 2012, based on sales of 40,000 units and the manufacture of 40,000 units (group 1) and 50,000 units (group 2). Compare your answers.

4 in addition to maximizing the use of Patel companys productive capacity, why might Moss wish to manufacture 50,000 units rather than 40,000 units?

5 Can you suggest and alternative way in which Mosss salary determinate, using a base salary of $128,000 and 10% of income from operation in excess of $340,000, so that salary could not be increased by simply manufacturing more units?